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Banks face credit downgrade over Greece

Ratings agency Moody's warned Wednesday it may downgrade the rating of French banks Credit Agricole, BNP Paribas and Société Générale because of their exposure to Greek debt.

Published: 15 June 2011 08:36 CEST
Banks face credit downgrade over Greece
Frederic Humbert

Moody’s said it would review their exposure “to Greek government debt and the Greek private sector and the potential for inconsistency between the impact of a possible Greek default or restructuring and current rating levels.”

“Today’s actions reflect Moody’s concerns about these banks’ exposures to the Greek economy…” the statement said.

“The magnitude and composition of these exposures differ substantially across these banking groups,” it added.

The statement said Credit Agricole’s Aa1 long-term rating and BNP’s Aa2 rating faced a downgrade of one notch while Société Générale’s Aa2 ratings could fall by two notches.

The announcement came as European leaders failed to agree on the terms of a possible second bail-out for Greece after talks in Brussels late Tuesday to avert a possible default.

Already on June 3, Moody’s downgraded the deposit and senior debt ratings of eight Greek banks, having downgraded Greece’s sovereign ratings just days earlier.

It said Credit Agricole and Société Générale both had banking subsidiaries in Greece which had already been downgraded.

BNP does not have a banking subsidiary in Greece and its exposure to the country was “more modest,” the statement said, although it held Greek government debt of around 5.0 billion euros as of December 31, 2010.

Moody’s said that Franco-Belgian bank Dexia could also face a downgrade due to its exposure to the Greek market.

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ECONOMY

How is Denmark’s economy handling inflation and rate rises?

Denmark's economy is now expected to avoid a recession in the coming years, with fewer people losing their jobs than expected, despite high levels of inflation and rising interest rates, The Danish Economic Council has said in a new report.

Published: 30 May 2023 15:46 CEST
How is Denmark's economy handling inflation and rate rises?

The council, led by four university economics professors commonly referred to as “the wise men” or vismænd in Denmark, gave a much rosier picture of Denmark’s economy in its spring report, published on Tuesday, than it did in its autumn report last year. 

“We, like many others, are surprised by how employment continues to rise despite inflation and higher interest rates,” the chair or ‘chief wise man’,  Carl-Johan Dalgaard, said in a press release.

“A significant drop in energy prices and a very positive development in exports mean that things have gone better than feared, and as it looks now, the slowdown will therefore be more subdued than we estimated in the autumn.”

In the English summary of its report, the council noted that in the autumn, market expectations were that energy prices would remain at a high level, with “a real concern for energy supply shortages in the winter of 2022/23”.

That the slowdown has been more subdued, it continued was largely due to a significant drop in energy prices compared to the levels seen in late summer 2022, and compared to the market expectations for 2023.  

The council now expects Denmark’s GDP growth to slow to 1 percent in 2023 rather than for the economy to shrink by 0.2 percent, as it predicted in the autumn. 

In 2024, it expects the growth rate to remain the same as in 2003, with another year of 1 percent GDP growth. In its autumn report it expected weaker growth of 0.6 percent in 2024.

What is the outlook for employment? 

In the autumn, the expert group estimated that employment in Denmark would decrease by 100,000 people towards the end of the 2023, with employment in 2024  about 1 percent below the estimated structural level. 

Now, instead, it expects employment will fall by just 50,000 people by 2025.

What does the expert group’s outlook mean for interest rates and government spending? 

Denmark’s finance minister Nikolai Wammen came in for some gentle criticism, with the experts judging that “the 2023 Finance Act, which was adopted in May, should have been tighter”.  The current government’s fiscal policy, it concludes “has not contributed to countering domestic inflationary pressures”. 

The experts expect inflation to stay above 2 percent in 2023 and 2024 and not to fall below 2 percent until 2025. 

If the government decides to follow the council’s advice, the budget in 2024 will have to be at least as tight, if not tighter than that of 2023. 

“Fiscal policy in 2024 should not contribute to increasing demand pressure, rather the opposite,” they write. 

The council also questioned the evidence justifying abolishing the Great Prayer Day holiday, which Denmark’s government has claimed will permanently increase the labour supply by 8,500 full time workers. 

“The council assumes that the abolition of Great Prayer Day will have a short-term positive effect on the labour supply, while there is no evidence of a long-term effect.” 

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