Bloomberg News

Greek Vote Removes Immediate Risk of Rating Cuts, Fitch Says

June 18, 2012

Fitch Ratings said the Greek election victory of pro-bailout parties led by New Democracy has removed the immediate risk of downgrades of other euro region nations.

“Fitch will not place all euro zone sovereigns on rating watch negative as it had indicated would be the case if a Greek euro exit were a probable near-term event,” Fitch said in an e- mailed statement today.

New Democracy won 129 seats in Greece’s election, enough to beat the anti-bailout party Syriza into second place and to put together a majority coalition with third-placed Pasok, according to final results. Leader Antonis Samaras now begins his second bid in six weeks to build a coalition as euro-area finance chiefs pressure him to form a government that will keep bailout aid flowing.

The crisis in Greece and the euro area “remains intense,” Fitch said. “Fiscal austerity and painful structural reform combined with a strong parliamentary opposition led by Syriza means that the new Greek government is likely to be fragile.”

Asmussen’s View

European officials indicated a willingness to ease the terms of rescue loans as long as Greece, with just weeks of cash in the bank, re-commits to their austerity demands. European Central Bank Executive Board member Joerg Asmussen said the election result is “indeed a ‘yes’ to reforms.” Asked whether the adjustment program for the country could be stretched, Asmussen said he would first like to take stock of Greece’s economic situation and where the program stands.

“It will be challenging to significantly ease the austerity program without receiving additional funds, although there is some room for manoeuver on the financing profile of the existing program,” Fitch said.

Spanish bonds slid today, propelling 10-year yields to more than 7 percent, a sign the elections failed to convince investors that politicians will be able to tame Europe’s financial woes.

Europe’s leaders will “mobilize all levers and instruments” to tackle the turmoil, according to a draft document, obtained by Bloomberg News, prepared for a June 28-29 summit in Brussels.

To contact the reporter on this story: Gabi Thesing in London at gthesing@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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