S&p: A Grexit Would Have Limited Risks For Other Sovereign Ratings

- A Greek exit (Grexit) from the Euro Zone would have limited rating impacts on other member countries' sovereign ratings, due to the eurozone rescue architecture is more robust than during the last Grexit scare in 2012, international rating company Standard & Poor's said on Friday.

"We believe that the financial burden of a Grexit on the remaining 18 eurozone sovereigns would be moderate and absorbed over decades, and we therefore do not expect that a Grexit, by itself, would have significant rating implications for these sovereigns" S&P said in a report.

Concerns about a Grexit, subsided following Greece's debt restructuring in 2012 and European Central Bank (ECB) President Mario Draghi's announcement that his institution would do "whatever it takes" to ensure the future of the euro.

A Greek exit from the euro would likely be accompanied by a payment default by Greece on both its official and commercial obligations, the S&P said.

"However, a Grexit would likely not, in and of itself, cause other eurozone members to exit the euro, not least because the eurozone rescue architecture is more robust than during the last Grexit scare in 2012."

Greece's links with financial markets had been sufficiently reduced to make such a direct contagion less likely, said the compan, while in this respect, the introduction of sovereign government debt purchases by the ECB under its Quantitative Easing (QE) program was key.

"The disparity between Greek sovereign bond yields and those of other eurozone sovereigns suggests that investors also consider that redenomination risk of other eurozone sovereigns is currently low, reflecting anticipated QE purchases as much as these sovereigns' stabilized macro fundamentals" said in the S&P report and added:

"Our main conclusions are, first, that a Grexit would almost certainly be accompanied by a payment default by Greece on both its official and commercial obligations. Second, a Grexit now would in our view be less financially risky for the remaining eurozone members than it would have been in 2012."

The S&P said it was because the more robust financial support architecture in place today in the eurozone as well as the marked reduction of financial linkages between Greece and the rest of the eurozone.

"Consequently, a Grexit may not lead immediately to a negative ratings impact for other eurozone sovereigns" the company added.