Storm of warnings hits Greece
Credit rating agency Moody’s has warned it might downgrade Greece in case of snap polls, while investment firm Goldman Sachs said there is a possibility that a cap will be set on bank withdrawals in Greece, as was the case in Cyprus.
In an analysis published on Friday, Moody’s qualified an early general election as “credit negative,” as it would put negotiations with the country’s creditors at risk, reduce investor confidence and raise Greece’s liquidity and financing risks.
Goldman Sachs estimated that Greece will require between 6 and 15 billion euros to cover its obligations in full next year. It also said there is a possibility that Greece may suffer the same fate as Cyprus, where the European Central Bank cut the supply of cash to its banks in March 2013.
The US firm added in its report on Greece that market pressures are not associated with the democratic process of the elections, or the possible change in government, but rather with the risk of a policy shift and a serious clash between Greece and its international creditors. According to Goldman Sachs there is no scope for any significant backtracking in reforms that have already been implemented, and any such effort would lead to a halt to the country’s funding by its creditors. In that context Goldman Sachs said that if the Parliament fails to elect a president and snap elections are called, market pressures will continue.
Its analysts say that while the state’s funding needs will be great, it is unlikely they will constitute a real problem as long as the ECB stands by the Greek credit system. However, they note, in case of a clash with the creditors, the ECB could pull the plug on Greek banks by stopping their liquidity supply, which would likely lead to a crisis similar to what Cyprus experienced last year.
In Cyprus banks adopted deposit control measures and Goldman Sachs estimates that fears of a possible Greek exit from the eurozone would culminate at that point.
