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Friday, April 15, 2011

Europe Update: Ireland Downgraded, Greece to default?

by Calculated Risk on 4/15/2011 01:55:00 PM

• Possible Greece default.

From Bloomberg: Greece May Need Debt Restructuring, Schaeuble Tells Die Welt

German Finance Minister Wolfgang Schaeuble said Greece may have to seek debt restructuring if an audit in June questions its ability to pay creditors, Die Welt reported, citing an interview.

Greece would have to negotiate to ease its debt burden since creditors can’t be forced to take losses until Europe’s permanent rescue system for the euro starts up in mid-2013, the Berlin-based newspaper cited Schaeuble as saying in comments published today.
And from Bloomberg: Germany Would Back Greece Debt Restructuring, Hoyer Says
“A haircut or a restructuring of the debt would not be a disaster,” said Hoyer, a member of the Free Democratic Party that’s the junior partner in Chancellor Angela Merkel’s government. If Greece’s creditors agreed that talks with the Greek government “would be helpful toward a restructuring of the debt, then of course this would be supported by us.”
The remarks by Hoyer were the most explicit by a European official showing a 110 billion-euro ($159 billion) bailout for Greece may fail to prevent the first default by a euro country.
It seems like a matter of when, not if. The 2 year bond yields for Greece, at 18.5%, suggest this will happen fairly soon. If haircuts are coming, the sooner the better for the people of Greece.

• And from the WSJ: Moody's Downgrades Ireland
Moody's Investors Service Inc. downgraded Ireland's government debt by two notches Friday, taking the country to the brink of junk status, and kept its outlook negative.

The agency, cutting Ireland's bond ratings to Baa3, one notch above junk, from Baa1, said it was responding to a likely deterioration in Ireland's fiscal position due to weak prospects for economic growth and higher borrowing costs as a result of rate rised by the European Central Bank.
Here are the ten year yields for Greece at 13.8%, Ireland at 9.7%, Portugal at 9.0%, and Spain at 5.4%.

If Greece defaults, will Portugal and/or Ireland be far behind?