Better to get Greek pain over with

Financial Times
May 26, 2011

George Papaconstantinou says it is “dangerous” even to talk about restructuring Greek debt. The finance minister’s advice doesn’t seem to count for much these days. European leaders seem to do little else, while the European Central Bank constantly warns that default means financial apocalypse.

Investors seem to disagree. Greek yields this week hit their highest on record, as default became ever more certain. True, contagion hit Ireland, where 10-year bond yields on Thursday rose above 11 per cent for the first time.

But talk of default has had only a muted effect on the rest of the eurozone: iTraxx senior financials, a measure of European bank risk, is up from 120 to 156 this month, but nowhere near the 200 it hit last year. The euro is stronger, too.

There is good reason for this. Investors distrust the warnings of European leaders as much as their assurances. Investors can also see the implications of Greece’s debt burden, forecast at close to 170 per cent of gross domestic product by 2015: default is inevitable.

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