Fitch to consider Greece in default


Ratings agency Fitch said the proposal for private sector involvement in the new rescue plan for Greece was a "default event", but remained positive about the overall implications of the plan.

"Fitch considers the nature of private sector involvement in a new financial programme of support for Greece to constitute a restricted default event," the agency's head of sovereign ratings David Riley said.

"However, the reduction in interest rates and extension of maturities potentially offers Greece a window of opportunity to regain solvency, despite the formidable challenges that it faces."

Fitch said the plan agreed yesterday at the euro zone summit was "an important and positive step" towards bringing stability to the single currency area and would ease near-term pressure on sovereign credit ratings.

The agency warned, however, that sustained and broad-based economic recovery across the region would be needed, and said it could not rule out further financial market volatility.

Countries would also have to reduce budget deficits and implement structural reforms to support long-term potential growth, it said.

Fitch said the decision to reduce the cost and extend the maturity of loans for Ireland and Portugal was supportive, but said it would continue to monitor the outlook for economic recovery and progress in both countries.

"If the Irish and Portuguese economies and public finances are not firmly on a sustainable path going into 2013, when both will need to regain access to medium-term market funding, the potential precedent set by private sector involvement in the Greek package will be incorporated into Fitch's assessment of the risks to bondholders and reflected in its sovereign rating opinions and actions," it said.

In a statement today, EU commissioner Ollie Rehn said the decisions made euro area leaders yesterday would bring benefits for the stability of the euro-area, and for the global economy.

"It is clear there is still much work to be done in all corners of Europe before we are firmly out of the stormy waters. But the direction is now clear, and we have all reasons to be confident about getting there, as long as all the partners do their share of implementation rigorously," he said.