Of Cows and Ice
Greek Debt Downgraded Amid Ongoing Stalemate

After EU creditors rancorously rejected the most recent proposal from Athens yesterday, Greek Prime Minister Alexis Tsipras met with German Chancellor Angela Merkel and French President Francois Hollande—once again to no avail. Angela Merkel’s bromide-laden statements say it all:

“Greece will now work emphatically at full steam with the three institutions in the coming days to try to clear up all the outstanding issues”.

“Every day counts,” Ms Merkel said as she arrived for the second day of an EU summit with Latin American leaders in Brussels.

Meanwhile, S&P cut the outlook on Greek debt yesterday, citing the missed payment to the IMF as evidence that the Greek government is running out of money and prioritizing payments to pensioners over external debts. The managing director for sovereign ratings said, however, that the missed payment was “not a default event in the eyes of S&P”, and that a July repayment on ECB bonds was the “real deadline.” “On current trends it may just be a question of time when commercial creditors will experience a default as well,” he told Bloomberg.

For its part, Moody’s yesterday warned of an increased likelihood of capital controls being instituted, as a slow but steady bank run continues unabated:

“The continuation of these outflows significantly increases the risk that the local authorities will impose capital controls to limit deposit outflows, which in our view would be tantamount to a bank deposit default,” Moody’s, the rating agency, warned in a report this week.

The runway just keeps getting shorter. Or to crib a more colorful phrase from Jean-Paul Juncker yesterday: “The cow has been skating on thin ice for too long. We have to take the cow off the ice.”

UPDATE: The IMF has announced it is calling its negotiators back to Washington following Thursday’s summit, as international creditors sent a stark message to Greece that it must compromise on its demands and commit to new economic reforms. EU President Donald Tusk also sounded a warning ahead of next week’s meeting of the eurozone’s 19 finance ministers in Luxembourg, saying: “There is no more time for gambling.”

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