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Rating firms don't see more euro break-up risk after Grexit proposal
July 14, 2015 / 11:49 AM / 2 years ago

Rating firms don't see more euro break-up risk after Grexit proposal

LONDON (Reuters) - Leading credit rating firms see no greater risk of the euro breaking up after the bloc’s leaders on Saturday discussed proposals for a temporary Greek exit from the single currency.

During five years when the possibility of “Grexit” has never been far from investors’ minds, Standard & Poor‘s, Moody’s and Fitch all say they have taken account of redenomination risk when assessing the creditworthiness of euro zone issuers.

That means Germany’s call for Greece to take “time off” from the euro -- which some analysts argue has significantly undermined the irreversibility of the single currency -- has not materially affected their calculations.

The three rating firms said Greece remains the only country at risk of a euro exit, and that is one reason why it carries an average rating some eight notches below that of Portugal, seen as the next weakest member state.

“It’s not appropriate to read too much across from the Greek crisis to other countries,” said S&P’s chief sovereign rating officer Moritz Kraemer. “I think Greece is not only rating-wise but also in other respects in a league of its own in the euro zone.”

Even though euro zone leaders agreed a plan to extend a third bailout to Athens on Monday, S&P believes ‘Grexit’ is still more likely than not to happen over the longer term.

One potential consequence is that Greece would revert to a weaker currency that could, after an initial shock, stimulate economic growth that has eluded it in the euro area.

Some argue that in turn could prompt countries with high debts and low growth -- such as Portugal and Italy -- to question the advantages of euro membership.

But Douglas Renwick, head of Western Europe sovereign ratings at Fitch, sees the chance of other countries leaving as remote. “For countries other than Greece, we do not see redenomination risk as high,” he said.

Moody’s meanwhile says it needs time to weigh up the significance of this weekend’s talks.

“I think we would want to take a bit of time to see what has happened once the dust has settled,” said Colin Ellis, the firm’s chief EMEA credit officer.  

    “The idea of Grexit isn’t new, it’s been talked about in the markets since at least 2010. But if over time the risks around the currency union have changed, of course we would have to address that.”

Additional reporting by Marc Jones; Editing by Nigel Stephenson and Catherine Evans

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