FRANKFURT (MNI) – The following is the verbatim text of a press
release, issued today by Moody’s Investors Service:

London, 26 March 2010 — The announcement by the European Central
Bank (ECB) yesterday that it would maintain its minimum credit rating
threshold for collateral at Baa3 reduces liquidity risk, most
immediately for Greece, but also potentially for other countries in the
Eurozone, Moody’s Investors Service said today in a special comment
entitled “New ECB Collateral Rules Enhance Short- and Long-Term
Financial Stability in the Eurozone.”

The minimum rating requirement for collateral had previously been
slated to return to its pre-crisis level of A3 in January 2011. Instead,
the ECB will maintain the Baa3 threshold, but introduce a graded haircut
system that would differentiate between the creditworthiness of
government bonds that were being used as collateral. Moody’s currently
rates Greece A2 with a negative outlook.

The ECB’s decision has little impact on the rating or outlook for
Greece, however, as the outcome had been anticipated in the current
rating. “Our view has been that the consequences of the ECB refusing to
accept government bonds as collateral were too severe for that threat to
be credible,” said Sarah Carlson, Vice President-Senior Analyst in
Moody’s Sovereign Risk Group and lead analyst for Greece.

The ability to pledge government bonds as collateral to the ECB has
been an important component of the liquidity backstop that Greek banks,
as well as other banks around the Eurozone, have relied upon during the
financial crisis. Moody’s also said that while the new collateral rules
maintain stability, the ECB’s haircut scheme is consistent with the EU’s
focus on enforcing fiscal discipline. “Under the new haircut
arrangements, there is now a greater opportunity cost attached to a
deterioration in fiscal discipline, and this increased opportunity cost
should be reflected in risk premia,” says Ms. Carlson.

Our rating stance on Greece is that the A2 (negative outlook) is
predicated on three assumptions: 1) that Greece follows through
rigorously on its ambitious fiscal commitments; 2) that the ECB rethinks
its collateral risk management policy, which has now occured; and 3)
that some mobilisation of external assistance will materialise should
Greece require it. While the 25 March announcement of a joint EU/IMF
support package is clearly positive, the process of mobilising external
assistance has been more fractious than anticipated. The key credit
question is whether, over the coming weeks and months, market confidence
will be strengthened by the support package or whether it will be
weakened by contentious conditions under which this package was agreed.

Moody’s last rating action on Greece was implemented on 22 December
2009, when the rating agency downgraded Greece’s government bond ratings
to A2 from A1, with a negative outlook.

The principal methodology used in rating the government of Greece
is Moody’s Sovereign Bond Methodology, published in September 2008,
which can be found at www.moodys.com in the Rating Methodology
sub-director under the Research & Ratings tab. Other methodologies and
factors that may have been considered in the process of rating the
government of Greece can also be found in the Rating Methodologies
sub-directory on the Moody’s website.

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