+++Vienna Plus+++

Posted by Tracy Alloway on Jun 20 09:32.

Introducing the latest in eurozone debt crisis terminology. ‘Vienna Plus’ — brought to you by Fitch.

The FT reports on Monday that European ministers were expected to back a plan, supported by the European Central Bank, dubbed ‘Vienna Plus.’ It’s basically the 2009 Vienna Initiative on steroids — holders of Greek bonds coming due in the next three years will not only be encouraged to maintain their exposures but also to buy new, longer maturing-bonds.

There are a number of problems with this –the original Vienna Initiative, for instance, involved a much smaller number of banks — but a recent focus has been on the ratings issue. If Greek bonds get rolled-over, so the thinking goes, they’ll be slapped with a giant ‘D’ for default by the rating agencies, making them ineligible as ECB collateral.

But wait! Here’s Bloomberg last week:

June 15 (Bloomberg) — Fitch Ratings said it would probably keep ratings of Greek government bonds above default level if European Union leaders go ahead with plans for investors to voluntarily roll over their holdings of the country’s debt.

Fitch would lower Greece’s sovereign rating to “restricted default” under such a plan, while leaving its bonds with “a low non-investment grade probably in the region of CCC,” the company said in a statement today [June 15]. Fitch said it would slap a default rating on the bonds if EU leaders back plans similar to Germany’s proposal to extend maturities of their Greek debt.

As Reuters explains, the separation of Greece’s sovereign rating from its bonds by Fitch effectively gives the ECB an ‘out’ in explaining why it’s accepting Greek bonds as collateral. Fitch can still downgrade Greece after the roll-over, and the ECB can still prop up Greek banks.

It’s funny how merely parsing the definition of ‘default’ and ‘restructuring’ can remove a sizeable ideological block between Germany and other eurozone members. Funny too, that Europe’s original bailout terms for Greece helped herd investors towards shorter-term (pre-2013) bonds in the country.

Or maybe not.

Related links:
The Vienna Initiative is already here – FT Alphaville
The Vienna Circle – Self Evident

This entry was posted by Tracy Alloway on Monday, June 20th, 2011 at 9:32 and is filed under Capital markets. Tagged with , , , , , , , , , , .

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