EU bailout plan raises short-term default risk: Fitch

Plans for the eurozone's new bailout fund increase the risk in the short term that weaker economies will default, Fitch Ratings said on Wednesday after Standard & Poor's downgraded Greece and Portugal due to similar concerns. Fitch said last week's decision to give the future European Stability Mechanism preferred creditor status could deter private investors from buying the bonds of the weakest eurozone states.
This would drive up these countries' borrowing costs, making governments more likely to resort to defaulting on their debts, even before the ESM is created in 2013. "In the short term, it potentially increases the risk of sovereign default arising from the current crisis by making it more, rather than less difficult for sovereigns currently under stress to secure affordable medium and long-term financing from the market," Fitch said in a statement, which did not include any announcements of rating cuts.
Standard and Poor's cut Greece and Portugal's ratings on Tuesday over risks that the ESM would increase the likelihood of debt restructurings. The European Commission challenged S&P over the Greek downgrade on Wednesday, saying it did not share the agency's view and had concerns about how credit rating agencies functioned.