Greece downgraded again to ‘highly speculative’


by David Malone

This morning the rating agency Moody’s cut Greece’s credit rating from Ba1 to B1.  That is a big drop.  It’s three levels down in a single review.

Ba1 is the first level of Non-Investment grade or Speculative bonds.  B1 drops Greece into the region marked “Highly Speculative”.  Bolivia lives down there.  Below is only ‘Extremely Speculative’ and ‘In Default’.  The size of the drop is as much the worry as the level itself.  It says Greece, according to the Bond market, is slipping faster not slower.  The market does not believe the European ‘rescue’ is going to work.  Not for Greece anyway.

Increasingly, it looks as if the ugly truth of the ‘rescue plan’, is that it is a rescue for those creating the plan, Germany and France, and those others France and Germany absolutely must, grudgingly, take into the life boat with them.  But no one else.  Spain and Italy might be on the list to be saved, but only provisionally.

Imagine a life boat occupied by a few wealthy people rowing slowly away from a sinking ship, through icy water filled with drowning people.  The people quite naturally shout for help and try to pull themselves aboard.  Those in the boat, looking at the sheer number of desperate people floundering towards them, get worried.  They tell the cold and drowning people, with all the calm and authority they can, to remain calm and not risk pulling the boat over in their attempts to get aboard.  Please stay clam and help us to help you, they call down to the drowning.  We’re coming to get you, we’re on our way.  While all the time slowly rowing away.

That is what the bond market is now thinking is going on and so, I think, are some of the countries, like Greece and Portugal and Ireland.  Ireland is of course a special case.  The Irish were actually told to empty their pockets as they swam, on the reasoning that they would swim better without all that money weighing them down.  Now they can drown happy in the knowledge they have ensured  the survivors in the boat will be wealthy as well as alive.

Greece’s downgrade came because Moody’s said they don’t think Greece will be able to implement its recovery.  Partly because Moody’s doesn’t believe in Greece’s growth myths, nor their ability to collect taxes.  They won’t collect taxes because the wealthy have never paid them and now the poor are joining them.  The wealthy tax cheats use banks and accountants to avoid taxes, the poor simply move their labour to a black economy.  Either way the result is the government will have no money.

Moody’s also worried about ‘implementation’ which means civil unrest.

Greece is, as many of us have been saying from the start, simply not going to make it.  Once the German and French big banks have unloaded enough of their Greek bad debt on to the ECB, then their life boat will be far enough away that all pretence of helping the drowning can be dispensed with.

The ECB is being used by its ‘owners’, those European nations whose banks have the most crippling debts, Germany and France, to save themselves and leave the rest to drown.

Will Spain be saved and what about Italy?  Both are probably considered too big to leave to drown.  But it is possible, I think, that France and Germany may think they could have a plan to let municipalities in those countires go bankrupt and default, while ‘saving’ the National level.  A dangerous plan if that is what they are thinking.  It’s the same plan the US is toying with by letting the States teeter on the edge of not paying.

What is going to decide it, is what happens in Libya and Saudi.  Oil is well over a hundred dollars a barrel and showing no sign of coming down.  There is no bigger cost to a nation than the cost of the energy which goes in to everything from food to transport.

The price of oil is killing any prospect of growth and any hopes of the mythic consumer led recovery, in many countries. Italy and Spain are especially tied to what happens in Libya.



David Malone is the author of the book Debt Generation. You can read and listen to excerpts from his book here: