Nobel Laureate Pissarides Sees Greek Bond ’Haircut’
Greece is likely to avoid a full default while investors in its bonds may take losses of 50 percent, Nobel economics laureate Christopher Pissarides said.
“I am very optimistic that there will be some kind of a rescue plan that will not involve a full default,” Pissarides, an economist and the first Cypriot to win the Nobel Prize, said an interview in Seoul today. “But I don’t think the haircut that has been applied so far, the discount on Greek debt, is going to be enough.”
Greece is in the process of receiving its second bailout from the European Union and International Monetary Fund as the region’s officials struggle to contain the debt crisis that has roiled world markets. Banks pledged in July to participate in a bond exchange and debt buyback program where “all instruments will be priced to produce a 21 percent net present value loss.”
Luxembourg Prime Minister Jean-Claude Juncker said through a spokesman on Oct. 11 that “haircuts” may exceed 21 percent. “Without knowing what the market premium was currently, I would have said about 50 percent is probably what is likely,” Pissarides said.
Pissarides, who won the economics prize in 2010 and is a professor at the London School of Economics, said European leaders deserve “a high grade for determination but I won’t give them a high grade for quick action.”
An Oct. 23 summit of euro leaders looms as a deadline for a breakthrough in combating the crisis. European Commission President Jose Barroso is calling for a reinforcement of crisis- hit banks, the payout of a sixth loan to Greece and a faster start for a permanent rescue fund to master the crisis.
Europe’s debt crisis has reached “a systemic dimension” and needs to be tackled “decisively,” European Central Bank President Jean-Claude Trichet said this week.
In Greece, protests have included state workers blocking access to the Finance Ministry’s main building in central Athens as the government plans to cut jobs and wages to meet conditions for international loans. Parliament votes next week on Prime Minister George Papandreou’s plans to cut wages and pensions and dismiss 30,000 workers.
“If it were left alone by its European partners then it would default, there is no alternative,” Pissarides said. “It doesn’t look like it is going to be left alone by the European partners, so I am very optimistic that there will be some kind of a rescue plan that will not involve a full default.”
He also said the European Union and the euro should survive.
“In fact, I have a fraction of my savings in the euro and I intend to keep them there,” Pissarides said.
Editors: Brett Miller, Paul Panckhurst