Cost of peripheral eurozone debt rises

Financial Times
June 2, 2011

The cost of eurozone peripheral debt rose on Thursday amid continuing worries over Greece after the country suffered a credit rating downgrade.

Greek, Irish and Portuguese bond yields rose because of uncertainty over how Athens would restructure its debt after Moody’s downgraded Greece’s debt three notches from B1 to Caa and said there was a 50 per cent chance of default.

A steeper rise in yields, however, was avoided because of rising hopes that Athens would be offered more rescue loans and expectations that the government was preparing to announce plans to speed up privatisation.

The biggest concern among investors is how Athens will restructure or default on its debt, which is considered inevitable by most investors because of the country’s huge debt burden. Greece’s debt is likely to rise to 157.7 per cent of gross domestic product in 2011, the European Commission has said. It currently stands at €262bn, or almost 150 per cent of GDP.

“Whatever way you look at it, Greece will have to bite the bullet and default. A big, coerced default may be delayed until 2013, but it will happen and that is putting peripheral yields under some pressure,” said one investor.

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