Greek bondholders are preparing to lose as much as 60% of their investments as European leaders try to impose a solution that reduces Greece’s debt burden by enough to end the debt crisis, according to Bloomberg.
“Everyone is coming to the conclusion that a much deeper restructuring is needed to make Greece in any way sustainable,” said Emiel van den Heiligenberg, chief investment officer of global balanced solutions at BNP Investment Partners in London.
“If the stock of debt doesn’t diminish, then the problems are going to be bigger and bigger and Greece will require rescue package after rescue package”, he added.
The news agency noted that German banks are preparing for losses of as much as 60% on their Greek holdings, three people with knowledge of the matter, who declined to be identified because the talks are private, said yesterday.
The risk is that creditors balk at forgoing more than the 21% initially suggested in a plan crafted in July, forcing Greece to miss debt payments and sparking a chain-reaction across the euro area’s markets involving rating downgrades and payouts on credit-default swaps.
“A reopening of the deal is very likely,” said Patrick Armstrong, managing partner at Armstrong Investment. “In the past, they were trying to avoid Greece defaulting and avoid recapitalizing the banks and what’s going to happen now will probably be more sensible. It will allow the euro zone to move forward.”
“You need a significantly larger haircut because what’s being discussed now isn’t enough to put this country back on the path of fiscal sustainability,” Pacific Investment Management Co. Chief Executive Officer Mohamed A. El-Erian said in a radio interview with Bloomberg. “We’re going to see it soon because I think the politicians and policy makers understand that debt reduction is part of the solution.”
(source: capital)
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