Fitch says haircut a default but necessary step for Greece
Fitch ratings agency says Greece?s credit grade will remain low even after its debt load is cut as part of a European plan to fight the financial crisis, which it regards as a temporary default.
The plan asks Greece?s private creditors to take losses of 50 percent on the country?s bond they hold. Along with new loans and other measures, that is meant to bring Greece?s debt down to 120 percent of economic output by 2020.
Fitch said Friday that the deal would result in a temporary default, as widely expected. After the private creditors have swapped their Greek bonds for new ones with a lower value, the country?s rating is likely to remain in the ?B? category, only a few notches up from its current CCC grade.
The plan «is a necessary step to put the Greek sovereign’s public finances on a more sustainable footing, notwithstanding that?if accepted?the 50% nominal haircut on the proposed bond exchange would be viewed by the agency as a default event under its ‘distressed-debt-exchange’ criteria.”
Fitch said the write-downs won’t translate into a comparable reduction in the country’s overall debt. It expects Greece’s public debt to peak at 142% of gross domestic product in 2013, «still by far the highest in the euro zone,» before coming back down to 120% of GDP by 2020.
“Fitch recognizes the significant challenges that the Greek sovereign will continue to face following the proposed debt exchange, against a backdrop of anaemic growth, austerity fatigue?possibly reducing the capacity to implement tough but necessary structural reforms?and continuing high debt levels,» it said.
[Combined reports]
