http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=a2O1Oealx0Hk
May 10 (Bloomberg) -- Greece’s money managers are warning of damage to an already crippled economy should European leaders move to restructure the country’s debt.
Greek 10-year bond yields and the cost of insuring the country’s debt against default rose to all-time highs at the end of April amid speculation about a debt write-off or an extension of repayment timelines. Standard & Poor’s cut Greece’s long-term sovereign credit rating by two levels yesterday to B, five notches below investment grade. The rating 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 downgrade. “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.
Bill Sale
Greece sold 26-week bills today to yield 4.88 percent, up from 4.8 percent at the previous auction on April 12, and investors requested 3.58 times the securities on sale compared with 3.81 times previously.
The government is eliminating 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.
European Central Bank Executive Board member Lorenzo Bini Smaghi said allowing a euro-area member state to default on or restructure its debt would create more problems than it solves.
“Default or debt restructuring is a dramatic economic and social event for the country which experiences it -- I would call it political ‘suicide’ -- which leads many into poverty, as experience has shown,” Bini Smaghi said in a speech in Florence today. While at first sight it might seem reasonable and fair to ask investors to bear the consequences of their decisions, “it is wrong not only in theory but also in practice,” he said.
Lobbying for Default
Bini Smaghi said large investors who have bought insurance against sovereign default “stand to benefit greatly from the default and lobby in favor of it.”
Fellow ECB Executive Board member Juergen Stark said today Greece is “not insolvent” and added the current fiscal program is aimed at regaining market access. “At the end of the day, a restructuring wouldn’t be a solution to the problems that Greece needs to overcome. There are structural problems and the budget needs to be brought under control,” he said.
“The ECB is fighting to keep politicians away from the restructuring debate,” said Nick Kounis, head of macro research at AMN Amro in Amsterdam. “They are worried that people are starting to consider it in important capitals.”
Further Adjustments
Euro-region officials said that Greece needs “a further adjustment program” after an unscheduled May 6 meeting with Luxembourg Prime Minister Jean-Claude Juncker, chairman 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.
George Magnus, senior economic adviser for UBS Investment Bank in London, said European Union leaders must restructure Greek debt without further delay.
“The sooner it happens the better,” Magnus said in an interview on Bloomberg Television’s “On the Move” with Francine Lacqua. “It is incumbent on Europe to basically draw a line somewhere, to say enough is enough, we’ve basically got to deal with this in a traditional debt-restructuring manner.”
Yields on two-year Greek notes fell 28 basis points to 25.3 percent at 2.33 p.m. in Athens today after hitting a record last week. The 10-year yield fell 28 basis points to 15.4 percent, up from 12.4 percent at the start of the year.
Economic Plight
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, 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 reduce 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.
Greek Funds
The Hellenic Fund & Asset Management Association’s members had combined assets of 10 billion euros at the end of 2010, according to the group’s website.
Any possible restructuring of Greek debt would have a “limited” effect on Greece’s fund management industry as “a very rigid” legal framework requires managers to value all securities based on the current market price, Xenofos said.
Domestic bond funds have exposure of about 700 million euros, he said. The figure rises to 1.5 billion euros when money-market funds and those investing in a range of assets are included, Xenofos said.
Key to the growth of Greece’s fund management industry are the state pension funds, which have so far only allocated as much as 1.8 billion euros to mutual funds out of a total of about 25 billion euros of assets, according to Xenofos.
“If you have state pension funds that don’t support the fund management industry in Greece, then you don’t have a safety net for situations such as the one we are experiencing,” he said.
No comments:
Post a Comment