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Citi: “Don’t Dread the D-Word”
In the case of Greece, a default is not just a distinct possibility but a high probability event, Citi says.
In a presentation dated November 22nd, analyst Lambros Papadopoulos notes that this due to:
-The size of the required adjustment needed to stabilise the burden of the public debt,
-The size of the burden of interest payments at c8% of GDP, and
- The lack of a strong social and political consensus on domestic burden sharing that might make the extreme fiscal austerity manageable….
The firm notes that the above mentioned factors make it unlikely that the Greek sovereign will only impose the cost of adjustment on its citizens.
“Which is why we expect that the country’s creditors will eventually be asked to share the burden,” it says.
Still, it says that the timing and probability of a credit event on Greek government debt are highly dependant on the willingness of other Eurozone members to support Greece. This is also dependant on the outcome of the debate on the Permanent Crisis Resolution Mechanism.
Citi doesn’t think a default will take place in 2011-12 provided that Greece continues to have access to the EU/IMF programme and estimates that the conditionality of the EU/IMF programme is likely to be the subject of further re-negotiations. Furthermore it doesn’t believe that Greece will want to exit the Euro.
On the market side, it estimates that Greece is likely to continue to underperform (northern) European markets in 2011.
Greek banks will underperform European peers and notes that it has no Buys on any of the Greek banks while it prefers the Cyprus banks and sees publicly controlled companies outperforming significantly if the new government addresses key issues.
Citi also favors international companies with a global reach and avoids purely domestic consumer plays.
In any case, “the ‘default’ stories are here to stay….”
(Capital.gr)
In the case of Greece, a default is not just a distinct possibility but a high probability event, Citi says.
In a presentation dated November 22nd, analyst Lambros Papadopoulos notes that this due to:
-The size of the required adjustment needed to stabilise the burden of the public debt,
-The size of the burden of interest payments at c8% of GDP, and
- The lack of a strong social and political consensus on domestic burden sharing that might make the extreme fiscal austerity manageable….
The firm notes that the above mentioned factors make it unlikely that the Greek sovereign will only impose the cost of adjustment on its citizens.
“Which is why we expect that the country’s creditors will eventually be asked to share the burden,” it says.
Still, it says that the timing and probability of a credit event on Greek government debt are highly dependant on the willingness of other Eurozone members to support Greece. This is also dependant on the outcome of the debate on the Permanent Crisis Resolution Mechanism.
Citi doesn’t think a default will take place in 2011-12 provided that Greece continues to have access to the EU/IMF programme and estimates that the conditionality of the EU/IMF programme is likely to be the subject of further re-negotiations. Furthermore it doesn’t believe that Greece will want to exit the Euro.
On the market side, it estimates that Greece is likely to continue to underperform (northern) European markets in 2011.
Greek banks will underperform European peers and notes that it has no Buys on any of the Greek banks while it prefers the Cyprus banks and sees publicly controlled companies outperforming significantly if the new government addresses key issues.
Citi also favors international companies with a global reach and avoids purely domestic consumer plays.
In any case, “the ‘default’ stories are here to stay….”
(Capital.gr)
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