Greek Default Costs Soar
By ART PATNAUDE
LONDON—The cost of insuring Greek and Portuguese government debt against the risk of default rose Wednesday, underscoring investor concerns about the two heavily indebted countries.
The annual cost of insuring $10 million of Greek debt for five years jumped $73,000 to $754,000 as investors continued to react to comments made Monday. The cost of insurance, as measured by credit default swaps, had risen $14,000 on Tuesday.
Mohamed El-Erian, chief executive and co-chief investment officer of bond giant Pimco, warned at a conference in New York that he expects Greece will default on its debt within three years. He added that it is in Europe's interest for Greece to default "because the alternative doesn't promise growth and employment generation."
In separate comments, Prime Minister George Papandreou said reforms have to continue so that sacrifices pay off, and that coming local elections require voter responsibility to deal with the country's debt crisis.
Greek elections in the country are scheduled for Nov. 7, and will be seen as a first critical test of the socialist government's standing after a year in power and several rounds of spending cuts and tax increases.
In May, Greece narrowly avoided bankruptcy by agreeing to a series of painful measures in exchange for a €110 billion ($152.37 billion) bailout from the International Monetary Fund and the European Union. Under the terms of that deal, the country aims to cut its budget deficit by more than a third by the end of 2011.
The country's finance minister told the Associated Press Wednesday that the country isn't looking now to extend the repayment period of an emergency bailout loan, but he isn't ruling it out.
George Papaconstantinou says the Greek government is "simply concentrating'' on fulfilling the conditions of the EU and IMF aid and that it is not "at the moment thinking or proposing something else'' on the repayment period.
He added that a repayment extension "is not up to us.'' Instead, he said, "what is up to us is to do the best that we can to reduce the deficit and do the structural reforms.''
The Greek official was speaking Wednesday on the sidelines of an economic forum on the east Mediterranean island.
In Portugal, the main opposition party, the Social Democrats, walked away from budget talks after it and the government disagreed mainly over tax increases.
The cost of insuring the government's debt, which had been falling on the day, turned higher. It now costs $356,000 a year to insure $10 million of debt issued by the country for five years, $21,000 more than on Tuesday.
(The Wall Street Journal)
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