Default needed to lure long-term buyers back to Greece

Reuters
July 5, 2011

Long-term investors standing aloof from the Greek debt crisis want holders of its government bonds to take a loss big enough to slash the country's debt to sustainable levels before they consider returning.

Greece is still expected to default at some point and for most investors who have dumped bonds over the past two years and who are crucial to put the ailing economy back on its feet, the longer that is delayed, the longer it will be before they consider looking at Greek assets again.

A likely second bailout -- currently under tortuous negotiation -- is seen only as a means to buy time for euro zone banks to provision for eventual losses and protect the bloc's larger economies from contamination, while the reforms attached to the package will be hard to implement in the face of deepening public resentment.

"We would buy if the economy manages to reform itself and if the banking sector is self-funded, but I don't think that's going to happen on a five-year view," said Russell Silberston, head of global interest rates at Investec Asset Management, who manages $31 billion worth of fixed income assets globally.

"Our view is they also need to default before that."

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