The second Greek bailout was aimed at ring-fencing euro zone contagion, but could unleash it instead.
Comments from rating agencies since euro zone leaders agreed to involve the private sector in a Greek rescue plan suggest last week’s events have increased rather than decreased the risk of contagion in the medium-term, says Gary Jenkins of Evolution Securities.
Fitch ratings stated on Friday:
If the Irish and Portuguese economies and public finances are not firmly on a sustainable path going into 2013, when both will need to regain access to medium-term market funding, the potential precedent set by PSI (private-sector involvement) in the Greek package will be incorporated into Fitch’s assessment of the risks to bondholders and reflected in its sovereign rating opinions and actions.
Moody’s said Ireland and Portugal were likely “credit-neutral” but highlighted ”the negative implications of this precedent-setting package” on countries that may come to face similar challenges. “For creditors of such countries, the negatives will outweigh the positives and weigh on ratings in future,” Moody’s said.
Markets were all too aware of the dangers of contagion last week when yields on 10-year Italian and Spanish bonds rose beyond 6 percent, towards levels (around 7 percent) beyond which funding costs are perceived to be unsustainable.