Standish notes investors tell Greece from Italy, Spain

LONDON | Standish, the Boston-based specialist management firm for investments in fixed income markets, issued a press release regarding the ongoing process in Greece after the country’s parliament passed a new fiscal austerity plan. The current Greek government intends to slash its debt-to-GDP levels to 120% in 10 years.

Tom Higgins, global macroeconomic strategist at Standish, believes that the prospects of a Greek default are not yet confirmed, even as euro zone leaders cancelled an emergency meeting at which they were expected to agree upon the full €130 billion bailout.

“It’s very hard to predict if or when Greece might default, and there would almost certainly be consequences for the rest of the Eurozone,” Higgins stated. “However, the recent strong performance of Italian and Spanish government bonds suggests investors are beginning to differentiate between the solvency risk in Greece and the liquidity problems of Italy and Spain.”

The communique added that “we believe that a Greek default would increase the risk of contagion to Portugal, where the debt dynamics are less favourable.”

Standish favours an orderly default to resolve the Greek impasse, which would calm the markets once the uncertainty of an EMU country admitting it cannot repay its outstanding debt is unblocked.

“In our view,” the note said, “only then would the region really be able to begin its recovery.”

The investment company mentioned social unrest in Greece as one of the reasons why the implementation of promised budget cuts seems unrealistic. Also, Standish considers that the measures are too limited and the country’s public debt would still be too heavy a burden for its economy after the austerity policies have had their effect.

Nevertheless, Higgins explained that

“We don’t think that Greece will exit the Eurozone in the short term but it can’t be ruled out as a longer term risk […] In the short term, we believe the pain of leaving the Eurozone is likely to be worse than staying the course, but this may change in the future. Were Greece to default as well as exit the euro, it would still need to undergo stringent austerity measures but without the much-needed external help currently available.”

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