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Fitch Cuts Greece To Triple Hooks From B+, Off Rating Watch Negative, Blast Lack Of Any Clarity

Tyler Durden's picture


Fitch Ratings-London-13 July 2011: Fitch Ratings has downgraded Greece's Long-term foreign and local currency Issuer Default Ratings (IDRs) to 'CCC' from 'B+. The Short-term foreign currency IDR is also downgraded to 'C' from 'B' and the Rating Watch Negative (RWN) on all three ratings has been removed. The agency has affirmed the euro area Country Ceiling at 'AAA', which is applicable to all euro area member states, including Greece.
The downgrade follows the assigning of a RWN on Greece's ratings on 20 May. At that time, Fitch stated that it would resolve the RWN in light of the conclusion of the fourth review of Greece's economic programme by the IMF and that in the absence of a fully-funded and credible EU-IMF programme, Greece's sovereign ratings would likely be lowered to 'CCC'. Moreover, Fitch's previous rating of 'B+' was premised on the judgement that provision of new money would not be conditional on private sector participation in any new and enhanced EU-IMF programme that would potentially result in a default event.
Today's rating downgrade reflects the absence of a new, fully-funded and credible EU-IMF programme for Greece, coupled with heightened uncertainty surrounding the role of private creditors in any future funding, as well as Greece's weakening macroeconomic outlook.
New money is required to address Greece's fiscal funding shortfall that would otherwise emerge in 2012 - a key weakness of the current EU-IMF programme highlighted by Fitch at the turn of the year. Fitch had expected the uncertainty surrounding new money, along with the role of private creditors, to be resolved with the completion of the fourth review of the current EU-IMF programme earlier this month. The agency notes that while the main parameters of a new multi-annual adjustment programme were discussed at an Ecofin meeting on 11-12 July, no further clarity on the volume and the terms of new money or the nature of private sector participation was forthcoming.
Fitch remains of the opinion that any additional financial support for Greece will only be credible in providing a path to fiscal solvency if it is fully funded beyond the end of the current programme in mid-2013. New European Commission estimates of gross fiscal financing needs of EUR172bn up to mid-2014 imply substantial additional EU-IMF financial support over and above the EUR110bn already committed. However, the agency is concerned that reliance on privatisation receipts of EUR30bn and largely unquantifiable private sector participation to supplement official new money would leave a new programme vulnerable to future funding shortfalls, subjecting Greece to continuing uncertainty. While asset sales of EUR5bn look attainable in 2011, the privatisation programme will become increasingly challenging.
Fitch believes any new programme must be backed by credible policy targets. The successful passage through parliament of the Medium Term Fiscal Strategy at the end of June sent a strong message that the Greek authorities remain fully committed to the EU-IMF programme. However, official new data for the first six months of 2011 point to expenditure overruns and revenue shortfalls, highlighting the urgent need for recently legislated new measures for 2011, while there are growing doubts about the capacity of the Greek economy to withstand further fiscal consolidation in a climate of continuing economic and financial uncertainty. Thus, a further contraction in economic activity of some 4% of GDP now looks likely in 2011, followed by a weak recovery in 2012.
Fitch's 'CCC' rating encapsulates substantial credit risk and acknowledges that default is a real possibility. As previously stated by Fitch, private sector involvement would likely be viewed as a sign of sovereign credit impairment and could trigger a rating default event.



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Wed, 07/13/2011 - 12:50 | 1452488 camaro68ss
camaro68ss's picture

Bullish, I bet this "Tradition" of down grading Greece is just "Transitory".


Netflix to the moon bitchz

Wed, 07/13/2011 - 14:05 | 1452800 ratso
ratso's picture

The implication of this downgrade of Greek debt is that the bag holder banks in Europe are quickly turning into Zombie Banks.  They are viable only to the degree that the ECB and individual countries guarantee that these banks will be kept liquid.  It took Japan 20 years to get rid of their Zombie Bank problem.  China is well on the way to creating its own version.

Wed, 07/13/2011 - 17:53 | 1453815 knukles
knukles's picture

Grecian Ratings Drama in One Act


Fitch: We downgraded you to CCC, Greece.

Greece:  What?  Fuck you mean?

Well, there’s no clarity surrounding this whole financial problem

Whaddya mean?  The EU, IMF and somebody else whoever it was had a meeting about it.
We know there was a meeting, we read everything they wrote about it, and there’s no clarity.
Well, you shoulda gone to the meeting.

What?  We’re not invited to the meeting.
We’ll tell you about it.
No, you’re a conflicted party; we have to hear it from somebody else.
Whaddya mean conflicted?

The meeting’s about you, you dolt.
No, it’s about them.
Whadda mean about them?
We’re the ones owes them money and we can’t pay, so why worry about us?  Everybody knows. (Leonard Cohen singing “Everybody Knows” in background)
Guess you got a point there.
So maybe you should be more worried about their ratings, eh?

Now that’s a thought.

So there ya’ go, leave us alone and go play with their ratings. Would you like to play with my rating?
Put that thing away.  That’s disgusting!  You perv.

Here, bend over.
Are you crazy?
No.  You know the old saying; “When in Greece, take it as the Greeks do.”
Lemme go.
Lemme outta here. Lemm… mufbbl ghh upphhhhhhhh
Zorba, get the olive oil, we got a new one! 

(Closing scene… serene field, flowers, butterflies, unicorns shitting rainbow colored Skittles, morphing into face of young man originally from Fitch, now behind desk with plaque stating “Director, Greek National Ministry of Ratings, with silly ass grin on face)




Wed, 07/13/2011 - 12:50 | 1452499 The Axe
The Axe's picture

who the fuck cares...just buy nflx or amzn    cash your profits in to buy gold....then buy a greek island on sale....

Wed, 07/13/2011 - 12:50 | 1452500 vote_libertaria...
vote_libertarian_party's picture

CCC...that means ching ching ching MONEY BABY!!!!



Wed, 07/13/2011 - 13:05 | 1452576 Dick Darlington
Dick Darlington's picture

When Italy drops to BB it's gonna be "bunga bunga" all night long!

Wed, 07/13/2011 - 12:50 | 1452501 misterc
misterc's picture

I drop my pencil.

Rating agency comes around the corner, says "You dropped your pencil."

Wed, 07/13/2011 - 13:23 | 1452633 Globalist Slayer
Globalist Slayer's picture

LOL.  Indeed.  The fact that you dropped your pencil highlights the need for new measures to be implemented to address the possibility of the event from reoccurring.  No further clarity was forthcoming regarding the steps that you are prepared to take to prevent such an occurrence from taking place.  Any third party involvement in bringing this event to your attention reflects the vulnerability of the pencil to further impairment.  Thank you, "Captain Obvious", Fitch, for your useless insight.  Oh, by the way, here's to a job well done with the mortgage backed securities fiasco.

Wed, 07/13/2011 - 13:29 | 1452667 karzai_luver
karzai_luver's picture

someone dropped a pencil?????



Wed, 07/13/2011 - 13:31 | 1452677 Max Hunter
Max Hunter's picture

Where were they 5 years ago when you were jabbing a pencil in my eye???  :)

Wed, 07/13/2011 - 16:07 | 1453335 boiltherich
boiltherich's picture

You mean they still do not have control over gravity?

Wed, 07/13/2011 - 14:55 | 1453017 kapillar
kapillar's picture

I think that you totally underestimate the contagion risks resulting from further pencil dropping. Once the ramifications of the fall of the pencil is fully understood by the financial community and central banks have exhausted their means of providing accomodative measures to pencil droppers, rating agencies across the board may feel obliged to consider any measure as an event of def .. definitive action required by ... Mom? Mom?

Wed, 07/13/2011 - 12:51 | 1452507 swissinv
swissinv's picture

Well I have to say, Greece is now definitely fucked... the EU will now let them go and all the sales and efforts were for the birds...

Wed, 07/13/2011 - 12:55 | 1452531 GeneMarchbanks
GeneMarchbanks's picture

At this point, the goal is simply torture anybody interested in this issue until you simply say: I give up! Then they can promptly default and nobody will care.

Wishful thinking... at best.

Wed, 07/13/2011 - 12:55 | 1452532 Version 7
Version 7's picture

Not to worry. The EU Justice Comissioner Viviane Reding has already promised to shut down or desmantle, or both, all the US rating agencies. For the sake of democracy.

Wed, 07/13/2011 - 13:01 | 1452555 Dick Darlington
Dick Darlington's picture

From Fitch's website:

Fitch Ratings and Fitch Solutions, as well as Algorithmics, a leader in enterprise risk management solutions, are part of the Fitch Group. The Fitch Group is a majority-owned subsidiary of Fimalac, S.A., headquartered in Paris, France.


How did the song by Alanis Morrissette go? Lalalaa, isn't it ironic. Or something like that. =)

Wed, 07/13/2011 - 13:09 | 1452591 Version 7
Version 7's picture

They'll be dismantled anyway. For working for the enemy.

Wed, 07/13/2011 - 13:28 | 1452658 Dick Darlington
Dick Darlington's picture

Very true.

Wed, 07/13/2011 - 16:14 | 1453368 boiltherich
boiltherich's picture

People will get their information from somewhere about the creditworthiness of debtors, or they will not invest, onthe one hand you have instead of the ratings firms the financial net like ZH which will tell them all they need to know; fiat is a ponzi scheme and there are no longer any investments that can reward you for the risks you are taking.  On the other hand without independent ratings agencies who in their right mind would would put a dime into these debt markets?  In fact, a lot of invested money is required to be invested only in topp notch rated bonds, with no rating it would be illegal to invest in these sovereigns.  Trust me, you don't need S&P or Fitch, I am Enron, would I lie to you?

Wed, 07/13/2011 - 13:30 | 1452673 karzai_luver
karzai_luver's picture

well that's nice , but it's 10 years (at least) too late.


Wed, 07/13/2011 - 13:30 | 1452675 knukles
knukles's picture

A couple of days ago some wise seer in the upper reaches of the distinguished geniuses in the EU plutocracy demanded that there be an EU entity established to provide ratings on an independent, non-biased, undistorted, non-conflicted, professional, timely, thoughtful, rational (blah blah yada stfu alrady) manner.


(drum roll, flyover by borrowed American jet)

The Ministry of Ratings

Wed, 07/13/2011 - 12:57 | 1452541 sabra1
sabra1's picture

and...............tonite china downgrades USA to get even, for the china bought useless bonds!

Wed, 07/13/2011 - 12:58 | 1452542 SDRII
SDRII's picture

Spanish Finance Minister Elena Salgado said the nation might need to endure even deeper spending cuts next year than those approved by Parliament yesterday as it battles to stave off Europe’s debt crisis

Wed, 07/13/2011 - 13:04 | 1452571 Dick Darlington
Dick Darlington's picture

So far only thing that has come out of her mouth is hard and cold denial. Doesn't matter whether it's abt the deficit, "growth",  banks or whatever, the only thing she has said is "we have no problems, nada.".

Wed, 07/13/2011 - 13:03 | 1452546 carbonmutant
carbonmutant's picture

Current Black Market prices in Greece.

Wed, 07/13/2011 - 13:01 | 1452556 papaswamp
papaswamp's picture

Greece will never be able to repay. European countries are pouring money into a black hole. BDIY down almost 2%. HARPEX has rolled over and never recovered anywhere near precession levels. Being one if not their main industry...shipping is in a decline.

Wed, 07/13/2011 - 13:33 | 1452688 karzai_luver
karzai_luver's picture

None of them can "repay" including the nbr 1 deadbeat , usa.

You drop the mil out of the mix and this joke would collapse overnight.

Only the gun props it up now.



Wed, 07/13/2011 - 13:05 | 1452563 qussl3
qussl3's picture

Almost all suckers onboard.

Once they sell the QE3 is here BS to the sheep, fun and games will follow.

Beware your paper PMs too.

Banana Ben made it pretty clear QE3 only considered if there is the threat of deflation, oil at 98 is not deflationary.

Wed, 07/13/2011 - 13:08 | 1452585 john39
john39's picture

that seems about right.  last big head fake, then the floor drops out.

Wed, 07/13/2011 - 14:34 | 1452932 Saxxon
Saxxon's picture

That's what I think john39; and right soon.  I took advantage of today's 5% plus jump in Ag to finally exit my AGQ which has gone a long way in easing my adjida (Italian: stomach ache) over conditions.  IN cash now, debating ZSL but will probably stay my hand shorting Ag just now).  Good luck.

Wed, 07/13/2011 - 13:05 | 1452577 Cognitive Dissonance
Cognitive Dissonance's picture

Gpap - "Damn those scurrilous rating agencies. Damn then to hell."

Wed, 07/13/2011 - 13:14 | 1452606 GeneMarchbanks
GeneMarchbanks's picture


I read your article. I was wondering if have ever read the work of one Ernest Becker? Just curious.

Wed, 07/13/2011 - 13:23 | 1452634 Cognitive Dissonance
Cognitive Dissonance's picture

I do not know this author......yet.

Wed, 07/13/2011 - 13:30 | 1452671 GeneMarchbanks
Wed, 07/13/2011 - 13:34 | 1452690 knukles
knukles's picture

I lost it.
I forgot.  Who just got downgraded?
Greece, Italy, Ireland, Iceland, Spain, Portugal or all of the African MENA region, Afghanistan, Iran, Iraq, Somolia, Egypt, Yemen, France, the EBC or the IMF?

Wed, 07/13/2011 - 13:51 | 1452747 Cognitive Dissonance
Cognitive Dissonance's picture

It does get confusing sorting out the losers from the losers.

Wed, 07/13/2011 - 14:09 | 1452816 slewie the pi-rat
slewie the pi-rat's picture

was it a ratings agency got downgraded?  not buffett-moody's, i'll betcha!

Wed, 07/13/2011 - 13:10 | 1452592 carbonmutant
carbonmutant's picture
Greece needs additional 71 billion euros in new EU aid

WASHINGTON: Greece needs an additional 71 billion euros ($100.6 billion) in European Union aid and 33 billion euros from private creditors to weather its debt crisis, the IMF said Wednesday.

Market sentiment has sharply soured against Greek debt, the IMF noted, pushing back its estimate for the eurozone country's return to the debt markets to the second half of 2014. The prior estimate was for early 2012.

Wed, 07/13/2011 - 13:54 | 1452760 Jonas Parker
Jonas Parker's picture

So Obama and friends cancel the August Social Security chrecks and send the money to Greece instead! Oopa!

Wed, 07/13/2011 - 13:11 | 1452599 Neezer
Neezer's picture

In other news, Fitch has just assigned a AAAA sovereign debt rating to US equities after the Bernanke testimony.

Wed, 07/13/2011 - 13:12 | 1452602 coppertop
coppertop's picture

Greek needs another olympiks

Wed, 07/13/2011 - 13:17 | 1452613 qussl3
qussl3's picture

SNB and BOJ about to have fits soon.

With Banana Ben saying that the USD is less of a safe haven their export industries will just LOVE the handicap.

Wed, 07/13/2011 - 13:21 | 1452624 JSD
JSD's picture

Long EUR/USD.  Very Long.

Wed, 07/13/2011 - 13:26 | 1452646 Hansel
Hansel's picture

Fitch had to wait until Greek debt yields 30% to downgrade.  Timely.

Wed, 07/13/2011 - 13:51 | 1452749 scratch_and_sniff
scratch_and_sniff's picture

Exactly, a joke. I think they only do it to sound impartial and objective, "oh, look at the wise sages doing things thoroughly, they might be a bit eccentric but they sure are objective".

Wed, 07/13/2011 - 13:28 | 1452659 citta vritti
citta vritti's picture

whew, at least they’re off that Rating Watch Negative list 

Wed, 07/13/2011 - 13:37 | 1452694 carbonmutant
Wed, 07/13/2011 - 13:42 | 1452719 knukles
knukles's picture

Pronounce "CCC"

cee cee cee

Sounds like somebody being arse bunged if I've even heard it.
Poetic justice a la Pellican Bay or Greece...
Oh never mind.
Piis on it, I'm gonna to a Lions Club lunch and taunt everybody who told me a year ago that I was a punk for owning gold, silver, munis, commodities and non-US dollars.

Wed, 07/13/2011 - 13:43 | 1452720 knukles
knukles's picture

Never mind.  They all passed away.  Old age.

Wed, 07/13/2011 - 13:55 | 1452762 Lord Welligton
Lord Welligton's picture

Does this not come a day or two after the ECB said they would still accept Greek debt in Repo as "not all" the ratings agencies considered it junk?

Who's next?




Wed, 07/13/2011 - 16:26 | 1453423 AldousHuxley
AldousHuxley's picture

Fitch is going by American education standard where B+ equal to D- in Chinese standard.


Pretty soon those folks using lower standard just to pass the idiots along will find themselves out of a job.

Wed, 07/13/2011 - 17:22 | 1453649 nontas
nontas's picture

From the IMF report on Greece:

Financial Sector Policies

 The authorities recognized a need to move more aggressively to secure financial stability (MEFP ¶9). Banks have been under significant stress. While completion of the review is expected to reduce uncertainty and deposit outflows, pressures will remain, and buffers will have to be rebuilt in a situation where delays in the government’s return to market will likely also delay banks’ return to wholesale markets. Banks must also build stronger capital buffers to manage their balance sheet risks and bolster confidence so as to facilitate earlier access to wholesale funding markets. While their Tier I capital ratios (11.1 percent as of 2011Q1) are at the European average (11 percent), the market heavily discounts the value of banks’ large government bond holdings, while the government’s intention to seek private sector involvement to help fill its financing gap (below) may require banks to recognize losses on bonds (which are currently mostly carried in their held-tomaturity portfolios). Given the rising challenges in the banking system, it was agreed that a stronger support and resolution framework would need to be put into place.

The government and the Bank of Greece (BoG) committed to preserve sufficient system liquidity, in consultation with the ECB (MEFP ¶10):

-          The pressure on liquidity is likely to remain very high for the remainder of 2011, due to deposit losses (as the recession continues), maturing bank bonds, and further possible loss of collateral eligibility (for instance, in the event of a downgrade of covered bonds). Significant baseline liquidity support could possibly be needed, and even more in the event of deposit instability.

-          Liquidity support, if necessary, could be delivered via the previously agreed €30 billion tranche of government-guaranteed bank bonds and via direct support from the BoG, funded through emergency liquidity operations, mainly ELA ( subject to the approval of the ECB Governing Council). The timeline for ECB approval of new government-guaranteed bonds is unknown, but the authorities have put into place the necessary technical preparations to enable ELA-related lending (which will also help manage any unexpected contingencies).

-          Effectively, the system will remain heavily reliant on ECB support. If the next tranche of government-guaranteed bonds is fully disbursed, peak support could top €130 billion, or almost 60 percent of Greek GDP. Greek banks cannot by themselves rapidly reduce their existing level of ECB exposure, let alone peak exposure, without risking a severe credit crunch and economic collapse. And the uncertainty regarding the pace at which ECB support will be withdrawn is itself a negative factor for system stability and is almost certainly contributing to tight credit conditions. To ensure that exit from this support is orderly and at a pace consistent with the program’s macroeconomic framework, it was agreed that banks should regularly update their medium-term funding plans, with the BoG providing guidance based on an assessment of the aggregate of the plans.

There was agreement that banks would likely face significant additional capital needs, and a process is in place to clarify these needs (MEFP ¶11). Capital buffers must be large enough to reassure markets that banks can manage a further deterioration in their loan books and/or crystallization of potential losses on Greek government bond holdings. To remove uncertainty about the loan book, a single recognized international capital advisory firm (paid for by banks) will be commissioned by the BoG to perform a diagnostic of banks’ loan portfolios (as was done, for example, in Ireland). The work should be complete by December, and in the staff‘s view should be publicly disclosed. It will likely point to a need for higher provisions. Concerning government bonds, the government’s PSI exercise may require banks to recognize losses, while the EBA stress tests assume some loss of value on government bonds (given current credit rating valuations), and through this channel may point to higher capital needs.

A core Tier I capital target and time line to achieve this were established (MEFP ¶11). Banks will be required to maintain core Tier 1 capital at a minimum 10 percent from the beginning of 2012. Under Pillar II requirements, additional capital buffers may be applied for individual banks, based on their specific risk profile. Banks will be required to present plans to the BoG by end-January 2012 detailing how they intend to reach the new CAR target by end-September 2012 through market solutions. This transition period is needed to pursue a market solution, given the number of banks likely to be simultaneously attempting to raise capital in a thin market, and the desirability of avoiding nationalizing the system. Some banks could be able to raise capital through market sources (e.g. through rights issues or the sale of non-core assets), and the government can directly inject capital into any bank it owns (if it cannot first privatize the banks). The authorities also committed to encourage banks to seek foreign merger partners (Greek banks do offer broader exposure to southeastern Europe). Still, Greece’s difficult macroeconomic conjuncture and banks’ funding difficulties and other balance sheet challenges will hamper full market solutions, and mergers will likely need to await a longer track record of program implementation.

In light of the evolving situation, the authorities indicated they would strengthen the framework for supporting bank restructuring and resolution (MEFP ¶12):

-           The Financial Stability Fund (FSF). No near-term use of the fund is expected. However, as noted above, the planned third-party diagnostic of bank loan books, the expected outcome of EBA stress tests, and PSI-related changes in the value of banks’ government bond holdings all suggest that banks may need to raise additional capital. Capital needs could rise if the market value of government bonds continues to fall and/or unexpected problems in loan books are revealed through the diagnostic exercise. For the FSF to remain a credible backstop for private banks—all the more important given the challenges banks are likely to face in raising capital—it must have adequate resources. At the same time, it was recognized that government resources for private banks would be limited by debt dynamics concerns. It was agreed that public sector commitments would be contained via new controls on the price at which the FSF would inject capital into a bank (to give banks a strong incentive to go to the market), and on the timeline for the FSF to dispose of any investments (to allow the fund to revolve faster). The amount of additional capital to be added to the FSF will be determined at the time of the next review, once capital needs are further clarified.


The resolution framework. The BoG has broadly adequate powers to take remedial and early intervention measures (although not all have been used in the past). Upon certain triggers, it may appoint a commissioner with managerial powers to run a troubled bank; it may withdraw a bank license and then put the bank into liquidation; and it can impose a moratorium on a bank's claims. However, the Greek legal framework lacks specific bank resolution tools—used in other countries with more comprehensive frameworks—which can provide a more orderly framework for dealing with bank problems, towards lowering the cost of resolving banks. In particular, there are no techniques to allow the continuity of banking operations, including sustained depositor access (e.g. the ability to undertake a purchase and assumption and to conduct resolution through a bridge bank). Reforms are also needed to ensure that the deposit insurance fund can be used to fund such techniques, and to establish depositor preference over unsecured creditors to better ensure recovery of guarantee funds. The authorities have agreed to improve the framework, although as the changes involve complicated issues related to property rights, and the need to set up a mechanism to potentially fund bridge banks, it is expected to take until mid-September to pass new legislation (combined with changes to the FSF law, this is proposed as a new program structural benchmark).

Supervisory and oversight framework. There is a need in Greece to clearly identify an agency with an overarching responsibility for resolution. The working relationship between the four existing agencies (MoF, BoG, FSF and Deposit Insurance Fund) is weak, partly due to insufficient resources, but also due insufficient efforts to collaborate closely. In the context of this review two steps were taken to begin rectifying this situation. Concerning coordination between the FSF and BoG, a Memorandum of Understanding between the two institutions will spell out an information sharing and confidentiality arrangement that will allow the FSF to receive information regarding the soundness of financial institutions (which will help the FSF rapidly evaluate the viability of plans provided by banks requesting capital assistance). Regarding staffing, for both the BoG and the FSF, the government’s centralized structure of public sector hiring has stood as an impediment to acquiring staff with adequate skills. To manage the situation in the BoG, well-qualified staff will be identified for transfer into the bank supervision department. The BoG is also  considering long-term technical assistance from other European supervisory agencies.

The authorities will take action concerning banks which have a capital base that now falls short of regulatory requirements (MEFP ¶13). The authorities recognized that they could not wait for the new resolution framework to be in place to take action. They also ruled out use of the FSF. At the same time, market conditions—ongoing deposit withdrawals threatening financial stability—were deemed too problematic to allow for the immediate use of existing powers (e.g. liquidation). The supervisor has thus requested that undercapitalized banks meet regulatory requirements or find appropriate merger partners by end-September. In one instance, a merger with a state-owned bank (which already owns a significant share of the bank in question) has been announced, conditional on an assessment of the financial impact on the state-owned bank.

The authorities’ plans concerning state-owned financial institutions have shifted towards early privatization (MEFP ¶14). Hellenic Postbank is targeted to be sold by end year, ATE (the Agricultural bank) by early in 2012, and the HCLF’s commercial activities within 12 months. Given market conditions, and the condition of banks’ balance sheets (including exposures to the government), this timetable will be challenging. To prepare the ground for this, ATE has been recapitalized by the government, and a law to unbundle the core consignment function from the commercial activities of the HCLF has been passed. A restructuring plan for ATE has also been approved by the EC targeting a reduction in the bank’s balance sheet by 26 percent by end-2013, although elements have been overtaken by events (in particular, with the Greek authorities set to seek voluntary rollovers of debt coming due, ATE may not be in a position to reduce its Greek government exposure, as called for in the restructuring plan agreed with the EC, and would need EC approval to maintain exposures). As an additional preparatory step for ATE sale, the government intends to establish equal treatment of agricultural land collateral across financial institutions (to ensure a level playing field between ATE and competing banks).

The authorities noted that work to strengthen the insurance sector is underway (MEFP ¶15). Weak institutions represent less than 7 percent of the industry, while subsidiaries of large foreign insurance companies along with the affiliates of Greek banks represent 80 percent of the market. Some nonviable insurance companies (representing 1.1 percent of insurance company assets) have already been closed, and the authorities report no negative reactions by market participants or customers. Other companies have successfully managed to raise capital, and the largest entity, representing one-fourth of the market, is now undertaking a capital-raising exercise. The supervisor is anticipating the outcome of the Euro-wide stress testing exercise for the insurance sector and will use its existing powers to address insurance companies which do not pass the stress test. This will include intensifying supervisory oversight, require institutions to raise capital within a certain time period or resolve them using other measures.

Wed, 07/13/2011 - 18:16 | 1453884 MS7
MS7's picture

Many economists thought Greece would be better off defaulting. What if the credit ratings agencies declare it to be in default. Is that the same thing? If so, then why does everyone seem to think it is a catastrophe? Thanks in advance for any answers.

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