Greece to Default ?At Some Point,? UBS?s Donovan Says (Update1) - Bloomberg.com#
Greece to Default ‘At Some Point,’ UBS’s Donovan Says (Update1)
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By Ken Prewitt and JoAnne Norton
March 24 (Bloomberg) -- Greece will default on its bonds “at some point” as the euro region fails to deal with its first major economic crisis, said
Paul Donovan, deputy head of global economics at UBS Investment Bank.
“I think it’s in an impossible situation,” said Donovan, who is based in London, in an interview with Bloomberg Radio today. “Europe has failed to clear its first serious hurdle. If Europe can’t solve a small problem like this, how on earth is it going to solve the larger problem, which is the euro doesn’t work. It’s a bad idea.”
European governments have yet to agree on how to fund any rescue for Greece, which says it will struggle to pay its debts at current market
interest rates. While Prime Minister
George Papandreou announced a 4.8 billion euro ($6.4 billion) austerity package on March 3, the extra
yield that investors demand to hold Greek debt over German counterparts has since risen.
The spread was at 324 basis points today compared with 316 points at the start of the month. The euro fell 1 percent today to $1.3358, extending its decline this year to 6.7 percent.
EU leaders meet in Brussels tomorrow after a week dominated by a split between Germany and France over whether the International Monetary Fund should pay for a bailout. Chancellor
Angela Merkel says her voters shouldn’t foot the bill for Greek excess, while French President
Nicolas Sarkozy says Europe needs to show it can solve its own crises.
Default ‘Unlikely’
Greece is unlikely to default and there will now be a period of “muddling through,”
Marc Chandler, New York-based global head of currency strategy at Brown Brothers Harriman & Co., told Bloomberg Radio today. In a separate interview, Columbia University Professor
Charles Calomiris said it’s not “inevitable” Greece will default even though it needs to cut government spending by 25 percent.
“A 25 percent reduction is something I’ve never seen in any country,” Calomiris said. “It would require a huge lift.”
A German finance official said yesterday that both countries may agree to involve the IMF. Papandreou said March 19 that Greece, which needs to sell about 10 billion euros ($13.4 billion) of bonds in coming weeks, is a step away from not being able to borrow and may need to turn to the IMF if European aid isn’t forthcoming.
Europe’s fiscal crisis shows the need for the euro region to create a common fiscal policy, former U.K. Chancellor of the Exchequer
Norman Lamont said in an interview in London today.
“That would be the logical step,” Lamont said. “I don’t think they are prepared to do that, and without doing that I think the euro is a contradiction, a currency without a state.”
To contact the reporter on this story:
Ken Prewitt in New York at
[email protected]
Last Updated: March 24, 2010 08:29 EDT
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