Fitch Ratings has warned that it would consider a voluntary rollover of Greece’s sovereign bonds as part of a rescue package to constitute default, and would cut their already low credit rating, putting pressure on European policymakers to put together a second aid package for Greece. Euro zone finance ministers are trying to put together a package that would include not just official loans, but contributions by private investors of Greek government bonds. If Greece does in fact default, it would be the first for any euro zone country.
Euro zone ministers told Greece last week that they had until July 3 to approve the new steps necessary to get the next installment of the 110 billion euro aid package agreed upon in 2010. The austerity package, necessary in order to receive the next 12 billion euro installment of the aid package administered by the EU and IMF, hasn’t been popular with Greeks, who have protested parliament en masse. Greek Prime Minister George Papandreou now faces a confidence vote before he can continue with the austerity measures.
Washington warns that the Greek crisis could pose a risk to global recovery from the financial crisis, with governments of Japan (NYSE:EWJ), Portugal, and Britain (NYSE:EWU) facing similar fiscal debt concerns. Fitch also considers the United States to be at risk of a debt default (NYSE:TLT), and says top-rated bonds may suffer if the U.S. doesn’t lift is fiscal borrowing ceiling. If Congress is unable to raise the debt ceiling by August 2, Fitch will put the U.S. sovereign rating on negative watch. The U.S. Treasury has said that Congress must raise the debt ceiling in order to avoid default. However, members of the Republican have been expressing a willingness to go into default in hopes that a default would force the White House to cut spending sharply.