Fitch's move is important because it’s the first downgrade of a Euro-zone sovereign into the territory where securities were not eligible for the European Central Bank (ECB)collateral until their temporary change of rules in response to the crisis; an arrangement in place until the end of 2010. Unless the ECB fiddles with its rules before the end of next year, Greek sovereign bonds will no longer be eligible for ECB collateral - if Moody's or S&P downgrade them.
Eurogroup pushed Greece to deliver a revised (and tougher) budget by mid-January. Apart from the pressure from European colleagues, the Greece needs to take S&P very seriously.
The Euro-zone will probably welcome this in the hope that Greece will indeed do enough on their budget. Meanwhile, Greece now desperately needs to get its Euro-zone colleagues to buy into their January 2010 budget, because of the continued risk that something goes wrong during 2010.
It's unlikely for ECB to refuse collateral issued by one of its sovereign members, but we are right now solidly on the path in that direction. So something has to give. Greeks will cave in and do somewhat better on the budget to avoid an S&P downgrade in February, but then - if during 2010 things get worse we'll be back in the bind with another downgrade - and then the ECB to bend its rules or change the institutional arrangements for this thing not to get out of control.
Eurogroup pushed Greece to deliver a revised (and tougher) budget by mid-January. Apart from the pressure from European colleagues, the Greece needs to take S&P very seriously.
The Euro-zone will probably welcome this in the hope that Greece will indeed do enough on their budget. Meanwhile, Greece now desperately needs to get its Euro-zone colleagues to buy into their January 2010 budget, because of the continued risk that something goes wrong during 2010.
It's unlikely for ECB to refuse collateral issued by one of its sovereign members, but we are right now solidly on the path in that direction. So something has to give. Greeks will cave in and do somewhat better on the budget to avoid an S&P downgrade in February, but then - if during 2010 things get worse we'll be back in the bind with another downgrade - and then the ECB to bend its rules or change the institutional arrangements for this thing not to get out of control.
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