European finance ministers today begin the final stage of hammering out a Greek rescue to prevent the euro area's first sovereign default after the country was hit with the world's lowest credit rating by Standard and Poor's.
Meeting in Brussels today in an emergency session before their monthly gathering next week, euro zone finance ministers are seeking to narrow differences on how investors share the cost of easing Europe's biggest debt burden.
The aim is to wrap up a new financing plan at a government leaders' summit on June 23rd, a year after Greece received a first bailout package.
New aid for Greece may total €80 billion from European governments and the International Monetary Fund, Belgian finance minister Didier Reynders said today.
Private investors may contribute €25 billion to the second emergency funding package for Greece in little more than a year, Mr Reynders said in Brussels. He said any participation by private investors should be voluntary.
Minister for Finance Michael Noonan is missing today’s meeting as he continues his four-day trip to the US, which is designed to promote investment in Ireland.
Yields on Greek bonds retreated from near-record highs as the government plans to sell €1.25 billion of 26-week treasury bills.
S&P said yesterday Greece is "increasingly likely" to face a debt restructuring, reflecting political pressure on investors not to dump Greek holdings. The S&P cut to CCC from B reflects "our view that there is a significantly higher likelihood of one or more defaults," the rating company said.
"Risks for the implementation of Greece's EU-IMF borrowing programme are rising, given Greece's increased financing needs and ongoing internal political disagreements surrounding the policy conditions required."
While the European Central Bank has said it could accept a plan in which creditors voluntarily agree to buy Greek bonds to replace maturing debt, the monetary policy makers have warned against a German proposal that maturities on Greek debt be extended for seven years, an outcome that rating companies said would be considered a default.
The yield difference, or spread, between 10-year German bunds and Greek securities of a similar maturity fell 10 basis points to 1,392 basis points. Yields on two-year notes fell 22 basis points to 25.9 per cent.
No other sovereign nation is graded as low as CCC by S&P, a spokesman said by e-mail. Moody Investors Service cut its rating on Greece to Caa1 on June 1st, leaving only Ecuador as a worse sovereign risk.
S&P said that its recovery rating on Greece's debt is '4,' indicating it estimates bondholders would recover 30 per cent to 50 per cent of their investment.
A "financing gap has emerged in part because Greece's access to market financing in 2012 and possibly beyond, as envisaged in the current official EU-IMF programme, is unlikely to materialise," the report said.
Greece's finance ministry said in a statement that S&P's decision "ignores" the "intense consultations" to resolve the country's crisis taking place between officials at the European Commission, ECB and International Monetary Fund.
"The decision by Standard & Poor's also neglects the determined efforts of the Greek government to avoid at any costs any possible violation of Greece's contractual obligations, and the strong desire of the Greek people to plan for their future within the euro zone," the statement said.
Bloomberg