Greek Fund Industry Head Warns Debt Restructuring Would Devastate Economy
Greece’s money managers are warning of damage to an already crippled economy should European leaders move to restructure the country’s debt. Greek bond yields and the cost of insuring the country’s debt against default rose to all-time highs amid speculation about a debt write-off or an extension of repayment timelines. Standard & Poor’s yesterday cut Greece’s long-term sovereign credit ratings two levels to B, five notches below investment grade. The ratings may be lowered further, S&P said. “Right now a restructuring shouldn’t and can’t happen,” Aris Xenofos, president of the Hellenic Fund & Asset Management Association representing 36 firms, said in an interview before the cut. “It would be devastating for the Greek economy, and detrimental for the rest of the European Union and the euro.” Greece is relying on its 110 billion-euro ($157 billion) bailout last year from the European Union and the International Monetary Fund, as well as Treasury bill sales, to meet its funding needs through 2011. As part of the package, Greece is supposed to regain access to markets next year and refinance at least 75 percent of its maturing medium- and long-term debt. The government is cutting state jobs and reducing debt at nationally owned enterprises as well as overhauling the country’s tax and pension system to boost revenue. “The key issue is not a restructuring, but the extent to which the economy and Greek society will manage to produce and deliver results following the structural reforms,” said Xenofos, who also is managing director of EFG Eurobank Mutual Fund Management Co., part of Greece’s second-largest bank. Euro Partners Euro-region officials said that Greece needs “a further adjustment program” after an unscheduled meeting over the weekend with Luxembourg Prime Minister Jean-Claude Juncker, chair of the group of finance ministers. A restructuring would hurt more than providing the country with additional help, the senior finance spokesman for German Chancellor Angela Merkel’s Christian Democratic Union party said yesterday in Berlin. Yields on two-year Greek notes increased 25 basis points to 25.58 percent yesterday after hitting a record last month. The 10-year yield rose 22 basis points to 15.73 percent, up from 12.4 percent at the start of the year. Credit-default swaps on Greek debt jumped 19 basis points to a record 1,360, according to CMA, signaling a 68 percent probability of default within five years. The markets should wait until next year to see if there are signs Greece’s economy is returning to growth, Xenofos said at his Athens office on April 29. “We need to wait until at least the earlier part of 2012 to see where we are and whether we need to start discussing more serious scenarios for a restructuring and the conditions and nature such a restructuring would take,” Xenofos said. Greece’s economy, juicy couture outelt in its third year of a recession, is forecast by the government to shrink 3 percent this year before returning to growth in 2012. The country’s debt is projected to peak at 59 percent more than economic output in 2012. The country plans 76 billion euros of austerity measures and state-asset sales through 2015 that aim to cut the budget deficit to close to 1 percent of gross domestic product from a targeted 7.4 percent this year. “Greece’s problems won’t be solved by restructuring its debt but by restructuring the country,” Prime Minister George Papandreou said April 15.