Investors in cash-strapped Greece appear to be losing faith in a pledge from European officials five years ago that the country’s default would be a one-off.
It was partly the strength of that promise that allowed Greece to make one of the fastest returns to markets of any defaulted sovereign, taking money from private investors in 2014 just two years after it had imposed hefty writedowns.
The rationale for those who bought the bonds was simple: Public creditors, which have lent Athens hundreds of billions of euros, but were spared in the 2012 restructuring, would have to take the next hit.
Yet just months before the first installment of the new debt falls due on July 17, a three-way quarrel between Greece, the European Union and the International Monetary Fund, has triggered a fall in prices that suggests that logic might be flawed.
The main concern for investors is that if a review of Greece’s bailout program is not concluded by early July, Athens will not receive the money it needs to repay around 8 billion euros of debt mainly due to the European Central Bank but also around 2 billion euros owed to them that month.
Lutz Roehmeyer, a portfolio manager at LBB-INVEST in Germany who owns around 3 million euros of the bond, said there was a “little bit of doubt” that Greece could pay its debts and that “an accident” could happen.
Overall, though, he was still expecting to be paid.
“If it is coming to a default by accident then the ECB would suffer, and from my point of view you want to avoid losses at the ECB level,” Roehmeyer said.
“It is one thing to have a bad headline about giving Greece money again, but even worse if you communicate that now losses have been incurred by the ECB.”