by Calculated Risk on 7/05/2011 08:45:00 AM

From Bloomberg: Trichet May Save Face With S&P, Fitch Greece Moves: Euro Credit

Standard & Poor’s and Fitch Ratings may enable European Central Bank President Jean-Claude Trichet to support a private investor rollover of Greek debt by saying a default rating would be partial and temporary.

Many observers think the ECB will back down and still accept Greek government bonds as collateral.

By saying the default is temporary - and if at least one rating agency keeps the Greek government bonds above a default rating (even if the rating agency lowers Greece's issuer rating to “restricted default”) - this could give the ECB wiggle room to keep accepting Greek government bonds as collateral.

The policymakers appear to have a couple of months to find a solution. The yield for Greek 2 year bonds are up to 27% this morning, and the 10 year yield is at 16.5%. Portuguese and Irish 10 year yields are at (11.6% for Ireland, 11% for Portugal).