Experts unconvinced on debt plan

Greece’s debt problems may not be solvable, according to a leading fund manager, while another expert predicted that the country faces the risk of a civil war due to its financial woes. The Greek government still faces a «substantial» default risk, as insolvency will prevents the nation from repaying its debt when its bailout program expires in three years, Pacific Investment Management Company (Pimco) fund manager Andrew Bosomworth said yesterday. «Greece is insolvent,» Bosomworth, the Munich-based head of portfolio management at Pimco, which oversees the world’s largest bond fund, told Bloomberg. «I see it as being quite a substantial risk that Greece eventually defaults or restructures.» In a best-case scenario, Greece’s government debt will swell to 150 percent of gross domestic product, Bosomworth said. The extra yield that investors demand to hold Greek 10-year bonds over the German equivalent is now 902 basis points, compared with 785 basis points at the end of June. Greek 10-year debt yielded 11.24 percent yesterday. The Spanish spread is at 173 basis points, Portugal’s is at 331 bps and Ireland’s is at 340 bps. Highlighting the skepticism surrounding Greek efforts to solve the crisis, the head of Germany’s prestigious think tank IFO Institute for Economic Research, Hans-Werner Sinn, predicted last week that further austerity would push the nation to the brink of «civil war.» The «least bad» option, he said, would be for Athens to drop the common currency. «The policy of forced ‘internal devaluation,’ deflation and depression could risk driving Greece to the edge of civil war,» Sinn said. «It is impossible to cut wages by 30 percent without major riots… Greece would have been bankrupt without the rescue. All the alternatives are terrible, but the least terrible is for the country to get out of the eurozone, even if this kills the Greek banks.» On Saturday, European Central Bank chief Jean-Claude Trichet said that if Greece were to leave the eurozone and revert to the drachma, that would be the «worst possible option.»

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