Greece seen blocked from debt markets until 2017

Fiscal Union

It may need a third bailout or another round of bond writedowns, or both, to get debt to a manageable level, said officials from the primary dealers, who asked that they not be identified. Some said policy makers must signal their willingness to share the burden by issuing common bonds before investors are confident enough to buy Greek securities.

“The only thing that will get investors’ trust back is to get something that looks like a fiscal union because Greece isn’t going to grow out of the problem,” said John Wraith, a fixed-income strategist at Bank of America Merrill Lynch in London. “Investors have given up on the concept of a union that doesn’t have a fiscal transfer, but does have the interest rate and currency locked together.”

The country sparked Europe’s sovereign-debt crisis in 2009 after saying its deficit was bigger than previously thought, reaching a euro-region record of 15.8 percent of GDP that year.

European leaders will hold a two-day summit starting June 28 to seek a way out of the debt turmoil. Billionaire investor George Soros warned that failure by the leaders to produce drastic measures may spell the demise of the currency.

Merkel’s Stance

German Chancellor Angela Merkel has hardened her resistance to euro-area debt sharing as a solution to the region’s debt crisis. Speaking today at a conference in Berlin, Merkel dismissed “euro bonds, euro bills and European deposit insurance with joint liability and much more” as “economically wrong and counterproductive.”

Yields on Greek 10-year bonds dropped to 27.21 percent today from a record high of 44 percent in March. The rate is at least 20 percentage points above the level at which Greece could fund itself, as the country along with Ireland and Portugal all sought aid when 10-year yields surpassed 7 percent.

The nation’s ratio of debt to GDP is projected to rise to 168 percent next year from 161 percent, according to the European Commission’s report of May 11. The economy will contract 4.7 percent this year and show zero growth in 2013, the commission said.

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