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Moody's: Greek Euro Exit Threatens Currency's Existence

Saturday, 09 Jun 2012 11:47 AM

 

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Moody's Investors Service said that a Greek exit from the euro could pose a threat to the currency's existence.

In addition, developments in Spain's banking sector that may require a European rescue package have negative credit rating implications for the sovereign, Moody's said in a statement.

"Were Greece to leave the euro, posing a threat to the euro's continued existence, we would need to review all euro area sovereign ratings, including those of the Aaa nations," the firm said.

A Greek eurozone exit would particularly affect the sovereign ratings of Cyprus, Portugal, Ireland, Italy and Spain, Moody's said.

Spain is rated A3 with a negative outlook by Moody's, putting it one notch above the BBB-plus rating with a negative outlook from Standard & Poor's. Fitch Ratings on Thursday slashed Spain's credit rating by three notches to BBB with a negative outlook, putting it two notches below Moody's.

Moody's said Spain's banking sector crisis is largely specific to the country itself and would not pose a major source of contagion to other euro area countries.

However, Italy, much like Spain, shares a growing funding reliance on the European Central Bank through its banks.

"The European Central Bank's role as a temporary liquidity provider cannot resolve tensions in the funding markets over the medium term, and has not done so," Moody's said in its report.

"The temporary calm induced by the ECB Long Term Refinancing Operation (LTRO) has dissipated, while the pronounced trend in re-nationalization of government bond and other funding markets continues to expose peripheral countries to the loss of market access," Moody's said.

© 2013 Thomson/Reuters. All rights reserved.

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