Moody's says eurozone must cut Greek debt

PARIS: Moody's rating agency said on Thursday that total debt owed by Greece is unsustainable and that the eurozone should abandon some of the money owed.

But Moody's welcomed the latest adjustment of Greece's rescue programme.

After marathon talks eurozone ministers agreed on Tuesday on a range of measures to help Greece as well as the release of 43.7 billion euros ($57 billion) in rescue loans to Athens.

"The disbursement will provide relief to the liquidity-starved Greek economy, but we believe that the country's debt burden remains unsustainable," said Moody's in a comment.

It said it considered the likehood of another Greek default on its debt as being high. The agency has Greece rated at C, or on the verge of default.

Moody's said given that around 70 percent of the country's debt is held by official creditors such Greece's eurozone partners and the IMF, that "only a reduction in principal on outstanding official debt would lead to a semblance of sustainability in Greece's debt."

Ratings agencies considered that Greece's write-down in March of around 107 billion euros in an agreement with private creditors a default.

The IMF has been pushing for a so-called "haircut" or write-down of debt by eurozone partner governments, but Germany and the ECB have been leading opposition to this. There was some recognition that such a haircut may be necessary but the issue was pushed off for several years.

The issue is particularly delicate in Germany, the EU's de facto paymaster and where the mood is strongly against aid, and where a general election is due next year.

Forgiving the Greek debt would also go against EU treaties which prohibit states subsidising one another and the central bank funding states.

Moody's noted that Tuesday's deal includes a number of measures to help improve Greece's debt position, including reducing interest rates on loans and forgoing any profits from acquiring Greek bonds on the secondary market.

It said it was uncertain if there would be sufficient participation in a buyback of Greek sovereign bonds from the private sector "to contribute to a meaningful debt reduction".

It noted that the International Monetary Fund has indicated it would withhold disbursing its 4.8 billion euros of support until the Greek government successfully completes the private-sector bond buyback.