The European Central Bank may have to take losses on its Greek sovereign bonds because the country is unlikely to repay its debt in full, Andrew Bosomworth, managing director at Pacific Investment Management Co. said.
“At the end of the day it’s the Greek government’s decision, therefore the ECB might unwillingly accept that it doesn’t get everything back,” Bosomworth said in an interview in Riga, Latvia, today.
Greek political indecision and economic weakness in recent months is jeopardizing the country’s efforts to meet budget targets. With debt now forecast to peak at 192 percent of gross domestic product in 2014, Prime Minister Antonis Samaras is pleading for two extra years to narrow the deficit.
“Its extremely difficult to see any way, any possibility how the country pays back its debt without receiving assistance in the form of debt relief,” Bosomworth said. “Greece is insolvent and it’s going to default. It’s just a question of how and when that is realized.”
International lenders have so far pledged funds totaling 240 billion euros ($308 billion) to Greece, which also had 100 billion euros written off its debt by private-sector investors this year in the biggest restructuring in history.
German Chancellor Angela Merkel’s government is willing to consider an ECB proposal for a buyback of Greece’s debt. The Frankfurt-based institution, which holds about 45 billion euros of the country’s sovereign bonds, views any voluntary haircut as monetary state financing, which is prohibited by its founding treaty.
“Our view is that there are many options to help reduce Greece’s debt burden and they should be considered,” International Monetary Fund spokesman Gerry Rice told reporters in Washington yesterday. Debt buybacks “could be useful if they were implemented in such a way as to deliver a meaningful reduction.”
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