Greek Debt Not Sustainable With Only 70 Percent Haircut: S&P

NEW YORK, Feb 8 (Reuters) - Greece will likely not achieve sustainable debt levels with a 70 percent reduction in the value of bonds held by its private creditors, Standard & Poor's warned on Wednesday, putting pressure on the official sector also to take losses.

Private-sector bond holders currently account for only a small part of Greece's creditors since most of the country's debt has migrated to the hands of the European Central Bank and other official institutions, S&P analyst Frank Gill said in a webcast with clients.

"In our original estimate, which was made two years ago, at that time debt-to-GDP would have been restored to a far more sustainable level," Gill said.

"But because only a small subcomponent of investors are actually taking the haircut and the official sector is not, or only partially, then the reduction... is probably not sufficient debt relief to make debt sustainable given the outlook for GDP itself."

S&P, which currently rates Greece at CC with a negative outlook, said it intends to downgrade the country to "selective default," but just temporarily, while the government concludes its debt swap.

Shortly after that, Greece's ratings should be upgraded to a "still low level," which will depend on whether the country's public debt is reduced to a sustainable position, Gill said.

Two euro zone monetary policy sources said on Wednesday that ECB policymakers are still divided on what contribution the bank could make to a restructuring of Greece's sovereign debt.


ITALY, FRANCE DETERIORATING

S&P also warned that credit conditions continue to deteriorate in Italy and France after it downgraded both countries last month, despite extraordinary steps by the ECB to boost liquidity in the market.

"We still see credit conditions deteriorating in places like Italy, places like France, and that is going to weaken domestic demand," Gill said. "That makes it very difficult to project what the fiscal outcome is going to be this year in those countries."

Comments

[frank1946]

12:25 AM on 02/10/2012

There is no Free Lunch !

Who said that ? Merkel, Reagan, Iacoca, Mickey Mouse ?

Just the Truth. Drama goes on and on.

[gerald4]

10:26 AM on 02/09/2012

Greece is similar to the USA except that Germany will not be able to loan us more money when people stop buying US Treasury Bonds that are denominated in US Dollars to finance US government expenses.

The US dollars that US citizens paid foreigners to manufacture our consumer goods and services that we consumed/received have NO VALUE, except that they are redeemable for title to privately owned businesses, factories, casinos, hotels, farms, land, ports, breweries, refineries, forests, ports, breweries, refineries, and other privately owned assets located in the USA that were created by previous wealth producing US generations instead of Gold from Ft. Knox.

The US International Trade Deficit must be corrected by any means possible (Re-Industrialize) in order to generate more NATIONAL WEALTH so that part of that new NATIONAL WEALTH can be CONFISCATED via taxes to pay for increasing government expenses, such as stimulus money for infrastructure expenses, etc.

The Trade Deficit is the basic structural economic foundation problem that will destroy the US economic miracle because title to US located assets are also leaving the USA to pay for the things that we import and consume in addition to paying for our increasing US government expenses.

[ylobrkrd]

12:51 AM on 02/09/2012

We will probably never know but I wonder how much of the entire world debt was shoved off on Greece. Greece non the less had terrible fiscal habits. The key habit was, drum role, not collecting taxes from private businesses. It's a poster child for what happens when there is no revenue through taxes.

[Richard Bartholomew]

01:22 AM on 02/09/2012

I suggest that the key bad habit was, and still is, simply allowing expenditures to exceed income too often. If you don't collect much in taxes, then don't spend much either and you'll still be alright.

[ylobrkrd]

01:47 PM on 02/09/2012

not paying any taxes is a part of the culture. the entire government is run shodily. they literally could not spend anything and still not come out even. that's what the prob shows at present.

[l78lancer]

09:10 PM on 02/08/2012

S&P needs to find a corner, sit down and be quiet. They have less and less relevance, value and credibility as they continue to issue rating proclamations. If the private institutions take cuts by 70 percent yet the country's debt is not sustainable because privately held debt is only a fraction of the total debt, yet the rating will be temporarily downgraded then upgraded but the public debt still has not been resolved what is the point of the ratings gyrations?

S&P ratings have fallen into the realm of fiction.

[mikey09]

08:41 PM on 02/08/2012

Its getting pretty bad in Greece, and I don't think the people have seen the worst yet. Its going to hit Italy, Spain, Portugal and France soon.

[Warren Yuill]

06:52 AM on 02/09/2012

Greece is unsustainable in its present form.
They need to come to a resolution (default?) before instability makes the function of government impossible.(revolution/civil war)

[rtx47]

07:55 PM on 02/08/2012

Countries can very easily stop going into debt.

Stop spending on the military!

Who is going to attack a member of an EU country?

[mikey09]

08:37 PM on 02/08/2012

What? Europe has been the site of a few pretty big conflicts.

[rtx47]

11:34 PM on 02/08/2012

Have any conflicts happened since the EU was formed?
What is the European courts doing?

Please give me examples of which EU country has used its military to defend itself since 1950 and from whom? I can give you more than half-a-dozen EU countries are have over-spent themselves into bankruptcy.

[Mike Keohane]

11:28 PM on 02/08/2012

Historically, when things get really bad in Europe, Eurpeans attack each other.

[piceaglauca]

07:36 PM on 02/08/2012

The whole issue of government employment, severance packages, pensions, and benefits is sucking the life out of us.

[procrustes13]

09:03 PM on 02/08/2012

True, the issue of cutting that stuff off certainly is doing that, it will ruin the economy to do that.

[piceaglauca]

11:35 AM on 02/09/2012

What would be your solution? Just asking. The American employment is 25% govt employees and for each family member/relative there is a vote. The govt can sustain itself with all of its supporting legislation. It needs an economic base.

[ur2nutty4me]

07:30 PM on 02/08/2012

Everybody but the eurobean union seems to know this already. My God the workers at Burger King know this..............

[Swamp People]

06:49 PM on 02/08/2012

Welcome to the future of America....envisioned and brought to you courtesy of Obama and the American left.

[Erikhuffpost]

07:10 PM on 02/08/2012

Now that's what I call progress. The internet has reached Hazard County.

[Warren Yuill]

07:17 PM on 02/08/2012

Best laugh in a long while.
thanks

[Swamp People]

07:20 PM on 02/08/2012

We have squirrel powered generators

[BustMyChops]

08:26 PM on 02/08/2012

Bush ran up the dept, genius. And I doubt you'll be giving back your social security checks. A program the left created.

[notwithmycash]

06:38 PM on 02/08/2012

Hey, wait for us! If Obama gets re-elected we are going to need help with a bailout.

[procrustes13]

09:04 PM on 02/08/2012

No, the US does not need a bailout as it controls its own currency, the British Empire ruled the waves with a far higher debt to GDP ratio than Greece has.

[procrustes13]

06:32 PM on 02/08/2012

Taking a 25% reduction in GDP just to punish the Greek people does not help make the debt sustainable, no, particularly as there continues to be no lender of last resort for Greece though the ECB does have this role for private for profit banks(!)

[Erikhuffpost]

06:07 PM on 02/08/2012

According to MenloPark no one seems to understand the very basic mathematic­al fact no amount of austerity can save a country running a trade deficit. I agree.

Money is by its nature not infinite. Whatever one country "earns", "leaves" another country. (assuming it does not print money).

Greece may well be a nation plagued by ineffective tax collecting. But how come the politicians of the 1992 Maastricht Treaty and its follow-ups have ignored that for years?

It was known then, as it is now.

Have these political leaders been wilfully ignorant, or plain dumb, or both? In any case, blaming the victim (the Greek population) is easy, if shifting the blame is the game.

And the real blame rests upon the very nations that seeked to increase their trade with their surrounding countries by lending money, a policy known as "beggar thy neighbour". Germany, France, the Netherlands, the UK adopted policies that very much attacked their own work force by reducing labour rights, wages, etc.

However, since wages form very much a part of the economy as a purchasing power, these countries introduced to various degrees the credit economy. As one political commentator once remarked: there are two ways of conquering a nation, by military occupation, or by debt.

So, the real game is not fixing Greece's economy or debt problem, but to bail out the lenders. Too big to fail but at the expense of people. So, "restructuring Greece's sovereign debt" is Newspeak for slavery.

Welcome to 1984.

[Warren Yuill]

07:19 PM on 02/08/2012

About sums it up.

[nopilikia]

05:48 PM on 02/08/2012

Guess those CDS aren't worth all that much after all. At least getting some idea of the true value of all that CDS junk Wall Street made up.......and still carries on the books.

[Jim Marusak]

02:16 AM on 02/09/2012

it's the people who insured those CDS's that are in big trouble as they have to try to pay them off. especially the naked ones. the covered ones will get the bonds and they can take their chances bugging the hell out of greece. but the swaps that are naked, basically insurance against the greek debt, that is the big problem, especially since a lot of people are not totally sure which ones are covered and which ones aren't. find those numbers and who holds what responsibility of coverage, and there's who well get FUBAR'ed.

[Kenz300]

05:33 PM on 02/08/2012

Maybe the Geek people should have paid their taxes. They made a game of not paying their proper taxes for decades. Even the tax collectors did not do their jobs. People with big homes, expensive cars and big boats report incomes of taxi drivers. Until Greece has a tax collection system that includes everyone fairly I do not see them getting out of this mess.

[notwithmycash]

06:40 PM on 02/08/2012

Yea, the 50% on government payrolls should have paid more taxes.

[ruolivert]

07:53 PM on 02/08/2012

I literally laughed out loud

[Joe P]

05:18 PM on 02/08/2012

Greece? What about the US?!?!? Let’s put 7 million unemployed back to work AND pay of the National Debt so our kids can have a decent future.
Take time to explore HR2990 (Kucinich/Conyers) as a solution to our JOBS, financial, banking and debt crisis.
To learn more and make this go viral... Go to http://www.causes.com/search?q=HR2990&commit=Search

[MenloPark]

06:07 PM on 02/08/2012

If you pay off the debt then there would be no net financial assets in the economy. The debt due to a self imposed law that when the government creates new money they must also offer treasuries means that the "debt" is actually a measure of all money created since the country began.

Therefore if you pay off the debt then you destroy all money created since the country began....

[Joe P]

10:08 PM on 02/08/2012

You do have a good understanding of the debt in the current system. I agree with you under the current system. This assumption is not valid after HR2990 is implemented (Incorporate the FED into the treasury).
Here is a white paper which gives a technical validation.

http://monetary.org/wp-content/uploads/2011/11/DesignOpenMacro.pdf

[procrustes13]

06:33 PM on 02/08/2012

AH, but that would cause hyperinflation if 7 million people returned to work, Milton Friedman's Accelerating Inflation would show up, it would be a catastrophe! That's the official view.

[Joe P]

10:11 PM on 02/08/2012

You also have a good understand­ing of the debt in the current system. And I agree with you too under the current system. But this assumption is not valid after HR2990 is implemente­d (Incorpora­te the FED into the treasury). Change the system, change the outcome.

Here is a white paper which gives a technical validation­.

http://mon­etary.org/­wp-content­/uploads/2­011/11/Des­ignOpenMac­ro.pdf