Ewald Nowotny yesterday described as “unacceptable” the power of Moody’s to determine the fate of Greece, and possibly Europe with it. Moody’s has just replied – by denying it holds such power.
The ECB usually requires more than A- rating on financial products used as collateral. This was lowered temporarily to BBB- during the crisis, a reduction expiring at the end of this year. Standard and Poor’s and Fitch have since downgraded Greek sovereign debt to BBB+, meaning they would not qualify as ECB collateral when the rating requirement changes back. Only Moody’s has kept a rating that would allow Greek debt to qualify.
So is Moody’s all-powerful in deciding the fate of Greece? Well, Ralph thought not: “My hunch is that the ECB would not raise collateral requirements in full knowledge that its action would exclude the assets of a eurozone member state”. And Moody’s agrees.
In a ten-point list just released, which defends the agency’s A2 rating, the agency says: “We do not believe that the ECB’s planned course of action is credible” (emphasis theirs). So, the report argues, Moody’s believes Greece will remain liquid.
The ball, it seems, is squarely in the ECB’s court.