Fitch: A Sovereign Default Within the Euro Bloc is Possible

Fitch ratings has rekindled fears of a sovereign default within the EU bloc.

According to Brian Coulton, Fitch’s head of Europe, Middle East and Africa sovereigns ratings, it was possible to have a sovereign default within the euro currency bloc, but that would not necessarily mean the break up of the euro zone.

Reuters: “The defaulting sovereign would not necessarily need to leave the euro zone, and the bloc may provide a safe harbor”, Coulton told Reuters at conference in London.

The threat of  governments and their inability to repay debt is at its highest in years. According to a report published earlier in the year by The World Economic Forum [WEF], sovereign defaults topped 2010’s risk hitlist.

However, in terms of the EU, Fitch has said that for now Ireland and Greece’s current credit ratings — both countries that overextend their debt to unsustainable levels  — are appropriate.

“I think that Ireland is very appropriately rated and Greece also, including negative outlook,” said Chris Pryce, Fitch director for ratings in Western Europe.

Fitch has a BBB+ on Greece with a negative outlook. Needless to say, that’s a major problem for Papandreou’s gov’t because the ECB isn’t supposed to accept sovereign debt as collateral for loans to commercial banks unless the debt is rated A- or higher. Fitch has also a AA negative rating on Ireland with a stable outlook,  and a negative outlook on Portugal’s double-A ratings.

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