Bloomberg | April 7, 2010 | 09:49 EDT
Greece may default on its debt as early as this year without “extraordinary” financial assistance from the European Union and International Monetary Fund, said Stephen Jen at BlueGold Capital Management LLP. The challenges facing Greece are similar to those that confronted Argentina, which defaulted on $95 billion of debt in 2001, as the government enacts austerity measures to narrow the European Union’s biggest budget deficit, Jen, managing director at the hedge fund, said today in an interview in London. That may drive the Mediterranean nation into a recession, he said. “A default may be ultimately unavoidable,” Jen said. “That eventuality may only be postponed by aid many times bigger than the 25 billion euros ($33 billion) people have in mind.” Any assistance needs to “impress the market,” he said.
Greek bonds fell for a second day, driving the premium investors demand to hold 10-year securities instead of benchmark German bunds to 407 basis points, the most since 1998. Market News International said yesterday the country wants to bypass IMF involvement in any EU-sponsored rescue because terms for aid would be too stringent. A Greek government spokesman denied the nation aims to exclude the IMF. Today’s declines pushed the yield up 12 basis points to 7.15 percent as of 2:48 p.m. in London. The spread averaged about 65 basis points in the five years through November before concern deepened that the country’s deficit would swell. Budget Pledge
The government has pledged to cut the shortfall. Finance Minister George Papaconstantinou said today the 2009 deficit will be revised to at least 12.9 percent of gross domestic product, more than four times the EU’s 3 percent limit. “The problems of Greece and Argentina might not be identical, but there are a lot of similarities in terms of inflexibility of the currency, capital flight and the risk of austerity measures leading to a sharp contraction in growth,” said Jen, who was an economist at the IMF from 1992 to 1996. “If the world is on the verge of experiencing sovereign debt difficulties, Greece” is likely to be among the first to default, he said. “I wouldn’t rule out the possibility of that happening this year.”
Petros Christodoulou, director general of Greece’s Public Debt Management Agency, said March 31 the country planned a “roadshow” in the U.S. and maybe Asia to drum up investor demand for a sale of dollar-denominated bonds. The country may offer as much as $10 billion of the securities, the Wall Street Journal reported the same day. “The next few weeks will be a heavy funding period for Greece,” said Jen. “Greece’s financing needs are huge in the coming two years. It needs to prove to the market that it can borrow in the next two months. That’s a minimum.”