Moody's downgraded Greece by three points and rated its state securities from B1 to Caa1 with a negative outlook. Institutions rated Caa1 are of very poor financial security, they could have outstanding debts or there could be doubts regarding payments regularity. Economists GRReporter consulted call for an immediate "soft" haircutting of the debt by approximately 30-40% and according to them, the return to the drachma is not just one option, but the most serious opportunity to revive the Greek economy.
Its midnight decision one of the three largest and most respected agencies in the world backed with the inability of Greece to stabilize its foreign debt without proceeding to cut its obligations to creditors. Moody's analysts do not preclude the institutions from the supervisory Troika (the European Commission, the European Central Bank and the International Monetary Fund) to offer private investors to assume part of the haircut debt as a condition of providing additional aid to the troubled country. At the same time, the agency estimated the chances Athens to declare the suspension of debt payments at 50%.
Regarding the negotiations between the Greek government and the representatives of the supervisory Troika, which are ongoing and should be completed today or tomorrow, Moody's expects they would end with a proposal for new funds inflow against a package of additional fiscal restrictions and monetary discipline. The analysts keep their negative outlook, i.e. they do not exclude a new downgrading of Greece because of the huge amount of debt, the great difficulties faced by the government in implementing the program for financial stability and the continuing need for additional external funding.
According to the agency, the Greek government would be even more unable to implement the new package of measures which would accompany the additional financial aid to Greece. Suspension of payments is more likely to happen, although the agency notes that it is not inevitable. "Moody's decision is influenced by the widespread rumours in the press that the Greek government is unable to meet its obligations to the institutions of the Troika and to implement the privatization program," said the official response by the Greek Ministry of Finance.
GRReporter turned to representatives of leading banks and businesses. "The government should immediately proceed to a soft debt haircut of around 30-40%," said a senior representative of one of the 4 largest commercial banks in the country. In his opinion, major Greek banks would withstand the quake but the insurance funds would have difficulties paying the pensions. "If the haircut does not take place now but after a year, then it would be harder, in the range of 50% or more, and much more painful for the banks," said the same source.
Another representative of a large foreign bank that operates in the Greek market did not deny the fact that local banks are preparing for a possible return to the drachma. "You will not find a formal document to confirm my words. But there is an informal understanding in banking circles that accounting should not rule out returning to the drachma," the source said. Anyway, Greek economic reporters begun to determine as a theatre performance the statements made by the Governor of the Bank of Greece George Provopoulos that a return to the drachma would be ridiculous. "If the Greek government does not accept the additional package of measures Greece is threatened to leave the eurozone. Furthermore, the European community has already started that debate," said a few days ago the European Commissioner for Maritime Affairs and Fisheries Maria Damanaki. Her statement led to a lot of comments but one thing is certain - it would be a big mistake to underestimate it.