Greece Denies Restructuring as Traders Raise Default Bet
April 18, 2011, 5:20 AM EDT
By Mark Deen and Rainer Buergin
(Updates credit-default swaps in fourth paragraph, bonds in seventh, adds Simitis in 12th, Lagarde in 14th paragraphs.)
April 18 (Bloomberg) -- Greece said it has no plans for a debt restructuring even as German officials openly discuss the possibility and investors charge a record amount to insure the country’s obligations.
“Restructuring is not an issue we’re discussing,” Greek Finance Minister George Papaconstantinou said in an April 16 interview in Washington. “The pain and the cost” of doing so would be greater than repaying lenders, he told reporters the same day.
Greece found support from International Monetary Fund Managing Director Dominique Strauss-Kahn and French Finance Minister Christine Lagarde after German Finance Minister Wolfgang Schaeuble was quoted as saying “further measures may have to be taken” if Greece fails a June audit. German Deputy Foreign Minister Werner Hoyer said in an April 15 interview that restructuring “would not be a disaster.”
Traders are betting on a default. The cost of insuring Greek sovereign debt jumped 56 basis points today to a record 1,211 points, according to CMA prices for credit-default swaps. That indicates there’s a 64.5 percent probability of default within five years.
‘Rightly Nervous’
Restructuring would “create realized losses across the global banking system -- but mainly in Europe,” said David Zervos, head of global fixed-income strategy at Jefferies & Co. in New York. “Markets are rightly nervous.”
Greece’s aid program was designed on the assumption that the country would repay debt rather than restructure, and “nothing has changed,” Strauss-Kahn said as he hosted the IMF’s semi-annual meetings in the U.S. capital. Lagarde said April 14 at the same talks that “there is no discussion about debt restructuring, none whatsoever.”
Greek 10-year bonds rose for the first time in five days, reversing earlier declines. The yield on the bond due June 2020 dropped one basis point to 13.82 percent as of 8:16 a.m. in London. The debt had earlier yielded as much as 13.93 percent, the most since the euro was introduced in 1999. A basis point is 0.01 percentage point.
“The issue of Greece is not whether there will be debt restructuring, but when it will be done, and whether it will be an orderly market-oriented debt exchange or disorderly like in Argentina,” Nouriel Roubini, the economist who predicted the global financial crisis, said at a conference in Kazakhstan on April 15.
Euro Partners
Greece has asked euro-area partners to consider rescheduling all of its debt, the Wall Street Journal reported, citing people familiar with the matter who weren’t identified.
Greek newspaper Eleftherotypia reported today that Papaconstantinou brought a request to extend the maturities of all the country’s debt to a meeting of European Union finance ministers in Hungary on April 8-9 and to representatives of the EU, European Central Bank and IMF who visited Athens in April. A Finance Ministry press officer in Athens, who declined to be identified citing government policy, denied the reports.
Lucas Papademos, an adviser to Greek Prime Minister George Papandreou and a former vice president of the European Central Bank, suggested April 9 that extending maturities would be one option to consider after implementing measures attached to a 110 billion-euro loan package from the EU and IMF.
‘Doing Harm’
“The extension of the maturities of the EU and IMF loans are one thing and the private sector is a completely different thing,” Papaconstantinou told reporters in Washington yesterday. “In the private sector, we are not discussing anything at the moment and the whole discussion on restructuring, unfortunately, the public discussion being held in Greece is doing harm to the country.”
Former socialist Prime Minister Costas Simitis believes Greece should restructure its debt, To Vima newspaper reported yesterday, citing an interview.
European Central Bank governing council member Ewald Nowotny said he sees “no need” for a restructuring by Greece. Such a step “would be very harmful and not efficient,” he said in an April 16 interview with Bloomberg News in Washington.
Asked today whether Greece needs to restructure its debt, Lagarde said “no, and I’m very firm on that,” according to an interview with the LCI television channel.
“We have a deal with Greece --financial support in exchange for recovery in public finances,” Lagarde said. “Greece is running its own program and is sticking to it.”
Questions over Greek finances are mounting while the country steps up efforts to reduce its budget deficit. Greece last week outlined 26 billion euros in cuts and 50 billion euros in asset sales.
The Wall Street Journal reported that IMF officials believe Greece’s debt burden is unsustainable and should be restructured. William Murray, an IMF spokesman, said yesterday that “there is absolutely no truth” to the report. German Finance Ministry spokesman Bertrand Benoit declined to comment today.
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