George Magnus, senior economic adviser for UBS Investment Bank in London, said European Union leaders must restructure Greek debt without further delay.
“The sooner it happens the better,” Magnus said in an interview on Bloomberg Television’s “On the Move” with Francine Lacqua. “It is incumbent on Europe to basically draw a line somewhere, to say enough is enough, we’ve basically got to deal with this in a traditional debt-restructuring manner.”
Greece’s credit rating was yesterday cut two levels to B from BB- by Standard & Poor’s, which said further reductions are possible as the risk of default rises. The country’s debt is rising a year after it received a 110 billion-euro ($158 billion) bailout, and euro-region officials said after an unscheduled May 6 meeting in Luxembourg that Greece needs “a further adjustment program.”
“There’s no such thing as a painless restructuring, no question about it,” Magnus said. “Not recognizing that obviously is a problem because the longer you leave it, the bigger the pain, the bigger the haircut becomes.”
The yield on Greek 10-year bonds stood at 15.3 percent at 11:21 a.m. in Athens today, twice the level of a year ago when Greece accepted an international bailout, indicating investors are betting Greece won’t be able to return to markets as planned.
“The problem is that the more intense the cycle gets the bigger the contagion effect can be on other peripherals and on other sovereigns, including Spain,” Magnus said. “It would certainly be very irresponsible not to basically have a plan to basically recognize the problem with insolvency and what happens if the reform process in Greece really gets stuck.”