An increase in European Central Bank interest rates, and a resulting stronger euro, are the ?last thing that Greece, Ireland or Portugal needs,? according to Pacific Investment Management Co, commonly known as Pimco.
?The ECB does need to make policy for the eurozone as a whole, but perhaps it should consider combining a rate-hiking cycle for the core with greater realism in terms of the approach for the weakest peripheral countries,? Andrew Balls, the London-based head of European portfolio management, said on Wednesday in a statement.
?Perhaps the best thing that could happen would be acknowledgement that Greece, Ireland and Portugal face significant solvency challenges, and some or all of them will need to restructure their sovereign and sovereign-guaranteed debt,? Balls wrote.
?Greece?s second review of its program with the International Monetary Fund made clear that the program is not working. It looks close to certain that Portugal will have to call on the support of its European partners and the IMF. The fact that its government fell last month has simply delayed the inevitable.?
Greek Finance Minister Giorgos Papaconstantinou said earlier this week that the ECB?s planned move was ?something that is of concern? but its impact would depend on whether further increases followed.
?I don?t think a small increase would make a big difference.?
He warned that weaning banks off ECB liquidity ?has to come gradually.?
The European Central Bank is widely expected to raise its benchmark interest rate on Thursday by 25 basis points to curb inflation pressures.
It has kept rates at a record low 1.0 percent since July 2008.