Ireland's debt costs rise amid new concerns on Greek status
BORROWING costs for the embattled Greek government and other peripheral eurozone countries rose yesterday amid fears that the status of Greek debt might fall below levels accepted by the European Central Bank (ECB) for lending to the banking system.
The cost of insuring Greek debt against default rose by almost 0.13pc (13 basis points); taking the cost of insuring €10m of debt exposure to more than €390,600. The equivalent Irish and Spanish spreads moved up by four and five basis points.
The new fears came after rating agency Moody's said it may reduce its A2 grade on Greek debt in a few months.
Two cuts in its credit rating to the same level as the other major ratings companies could mean Greek government bonds were no longer eligible as collateral for bank borrowings from the ECB, making it even more difficult for the government to borrow and the banks to fund their operations.
Moody's did say a cut was conditional on the efforts of the Greek government. "We have to let the government implement its plans. You can't expect a government to be able to turn around public finances in a few days," Pierre Cailleteau, managing director of sovereign risk at Moody's, said.
The ratings firm Standard & Poor's, which has a lower rating on Greece, said earlier that it may cut that BBB+ rating "one or two notches" by the end of March.
"The rating could be pressured by lower profitability at the country's banks or a decline in public support for the budget plan," it said.
US Fed chief Ben Bernanke said the Fed was looking into the use by investment bank Goldman Sachs and other Wall Street firms of financial instruments such as credit default swaps to make bets that Greece will default on its debt.
"Obviously, using these instruments in a way that intentionally destabilises a company or a country is counterproductive," Mr Bernanke said.
Other parts of Goldman are under fire for helping reduce the apparent size of Greek debt.