The head of ratings agency Standard & Poor’s European sovereign rating unit warned on Saturday that a joint Euro bond guaranteed by all member countries would get the weakest member’s credit rating.
Talking at a panel discussion, Moritz Kraemer, managing director of the EMEA sovereign ratings division said S&P was not in talks with the European Union about the possible since it would amount to conflict of interest.
The proposed joint euro bond should be structured along the lines of Germany’s jumbo bond where different states come together to guarantee their bit of the debt issue, said Kraemer.
“If the euro bond is structured like this and we have public criteria out there then the answer is very simple. If we have a euro bond where Germany guarantees 27 percent, France 20 and Greece 2 percent then the rating of the euro bond would be CC, which is the rating of Greece,” Kraemer said.
“If it is a joint and not a several guarantee then it would be the weakest-link approach, as we call it. Possibly this could be structured in a different way. I don’t know because we are not in talks with the EU. It is not our task to help structuring or advising. We don’t do this again to prevent conflict of interest,”
The sovereign credit rating of Greece was further cut to CC from CCC by Standard & Poor’s in July, pushing it closer to the junk category. The European Union’s proposed debt restructuring would put the country into ‘selective default’, the ratings agency had observed.
S&P’s move followed similar prior downgrading by the other two big ratings agency, Moody’s and Fitch, which had warned of a Greek default despite banks and euro zone leaders agreeing that the private sector should shoulder part of the rescue package burden that provides desperately needed cash to keep the bankrupt country’s economy afloat.