Bloomberg News

Ackermann Says Greek Default Would Be ‘Playing With Fire’

January 31, 2012

(Adds Ackermann comments starting in the second paragraph. See {DAVOS <GO>} for more on the World Economic Forum.)

Jan. 28 (Bloomberg) -- The economic and political consequences of Greece defaulting instead of reaching a voluntary debt-restructuring deal are being underestimated, Deutsche Bank AG Chief Executive Officer Josef Ackermann said.

“Default risk is much higher than what people normally take into account,” Ackermann said today in an interview at the World Economic Forum in Davos, Switzerland. “You see already that some markets are nervous about certain countries,” he said. “That is playing with fire if you think that a default will have no impact.”

As Greece’s creditors continue negotiations with the country’s government as well as the International Monetary Fund, European Union, and European Central Bank over the terms of a restructuring, some investors and financiers are downplaying the consequences of a default. JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said this week that it would not be a “disaster,” Dow Jones reported, citing an interview with CNBC.

“They are underestimating the collateral damages and they are underestimating the risk of contagion,” Ackermann, 63, said today. “If we have a default in the euro zone going forward, this will reduce somewhat the trust and confidence in the euro system and so, in that sense, we should do everything also from a historic and political perspective to prevent a default.”

Market participants remain sceptical that Greece will be able to make a 14.5 billion-euro ($19.2 billion) bond payment in March. In a Bloomberg Global Poll of 1,209 investors released this week, 93 percent of respondents said they expect Greece to default.

Single Negotiator

Such a failure would damage direct investments that banks and companies have made in Greece while also hitting the firms because of their exposure to its broader economy, Ackermann said today. The fallout would affect a claim of about 100 billion euros that the European Central Bank payment system has against the Greek central bank, he said.

Deutsche Bank, Germany’s largest lender, has 874.7 million euros of total debt exposure to Greece, according to figures released by the European Banking Authority in London in December. The bank at that time had sold 4.42 billion euros of credit-default swap protection on Greece and had purchased 4.32 billion euros of CDS protection, the data showed.

Ackermann is immersed in the Greek debt negotiations as chairman of the Institute of International Finance, which represents banks, fund managers and other private-sector Greek creditors in the debt-restructuring talks. He said today that he wants policy makers at the table, including the IMF, EU, ECB and Greek government, to appoint a single negotiator to ease the process.

Soros, Babacan

“We have a team now in Athens negotiating, or ready to negotiate, and we need someone from the public sector who has the authority to close the deal,” Ackermann said. “The gap is narrowing. We are still not quite there where the IMF and especially Germany would like to be, but we are making good progress.”

Billionaire investor George Soros told Bloomberg Television yesterday that Greece remains the region’s weakest link.

“If Greece defaults it should not be the end of the world,” Soros said. “But the rest of Europe needs to be sufficiently ring-fenced, and not enough has been done.”

Turkish Deputy Prime Minister Ali Babacan also warned against the dangers of allowing a country to default. Turkey is not a member of the European Union or the euro area.

“Once that door is open for defaults, it is possible and likely other countries could go through that door,” Babacan said today in Davos. “It’s time to show a serious demonstration of solidarity, but make sure countries don’t default.”

--With assistance from Caroline Connan, Simon Kennedy and Erik Schatzker in Davos. Editors: Otis Bilodeau, John Fraher

To contact the reporter on this story: Christine Harper in Davos, Switzerland, on charper@bloomberg.net

To contact the editor responsible for this story: Otis Bilodeau at obilodeau@bloomberg.net


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