Greece Bailout Is Actually Default

The credit agency Moody's has slashed the Greek government's debt ratings into junk territory, warning that the nation's newest bailout deal implies a sovereign default.

What's the Latest Development?

The new Greece bailout deal agreed to by the European Union (E.U.) is tantamount to default, says Moody's credit rating agency, and "raises the likelihood that private creditors will suffer 'substantial' losses on their holdings of Greek government debt." The international credit agency slashed the Greek government's debt rating to one notch above the lowest score possible. The E.U. has agreed to release another $156.6 billion in official financing for Greece, "combined with $37 billion in agreements from the private sector to roll over maturing debt."

What's the Big Idea?

While Greece's short-term credit situation is dismal—the country has been unable to meet its financial targets which were conditions of earlier bailout packages—its mid and long-term prospects are greatly improved by European assistance. "The Greek support package benefits all euro-zone sovereigns by containing contagion risk that would have followed a disorderly default, Moody's said. Other positive effects include a short-term boost to market confidence, new tools to help stabilize sovereign-debt prices and a lower interest rate on European Financial Stability Fund funding."

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