“What’s more, even if the bulk of investors sign up to the French plan, it will not solve all of Greece’s problems,” Ben May, European economist at Capital Economics in London, wrote in a research note. “After all, the government will still need to tighten fiscal policy dramatically in order to close its huge budget deficit.
“This, coupled with the economy’s poor competitive position, points to a long period of weak growth at best. Accordingly, government debt will remain astronomically high.”
Finally, there’s the not-insignificant matter of the ratings agencies.
Fitch has said any voluntary rollover would constitute a default and cause the bonds to be rated “Restricted Default.”
This essentially puts the new Brady plan in a Catch-22: The rollover will only be approved as long as the bonds aren’t in default, and if the bonds are rolled over they’ll be classified as a default.
It is well to keep in mind that the major ratings agencies—Fitch, Moody’s and Standard & Poor’s—are going to have a chip on their collective shoulders after being caught asleep ahead of the financial crisis of 2008 and 2009. They aren’t going to allow themselves to be left unaware this time around.
Fitch expressed its position in a letter from Managing Director David Riley to the Financial Times that carried the headline, “If it looks like a default, we will rate it as one.”
The missive pretty well sums up the Greek dilemma and why France’s proposal won’t work.
“By far the most important and beneficial outcome for Greece and its creditors is securing a credible solution to the current crisis,” Riley wrote. “In light of the market focus on a rating outcome, we would like to take the opportunity to make clear that Fitch is guided by the spirit as well as the letter of its criteria—if it looks like a default, we will rate it as a default.”
Questions? Comments? Email us at NetNet@cnbc.com
Follow Jeff @ twitter.com/JeffCoxCNBCcom
Follow NetNet on Twitter @ twitter.com/CNBCnetnet
Facebook us @ www.facebook.com/NetNetCNBC