Greek Debt Best Sustained by Haircuts, Measures, Citigroup Says

Bloomberg
April 21, 2011

Greece’s debt will become sustainable most effectively through fiscal measures and a so-called haircut on the country’s debt, Citigroup Inc. (C) said.

“The best combination to achieve a sustainable Debt/GDP is through a combination of measures and a 40 percent haircut,” Citigroup Inc. analysts, including London-based Stefan Nedialkov, said in an e-mailed note today. A “haircut” would translate into losses for holders of Greek government bonds.

Concern that Greece may need to restructure its debt caused bonds to tumble across Europe. Finance Minister George Papaconstantinou said yesterday a restructuring holds “huge dangers” for Greece’s economy, banks and the European Union.

“Under our haircut scenarios, banks in Belgium, France and Germany are the most exposed with impact to Tier 1 ratios ranging from 8 to 111 basis points,” the analysts wrote.

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