Greek haircut needs to be 75%, says Ignis' Bowie
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The Greek government and its private-sector creditors appear to be edging closer to a deal on the Greek debt haircut, although one bond manager warns the two sides could be forced back to the negotiating table within years.
Athens and a group of private-sector creditors led by the Washington-based Institute of International Finance (IIF) are currently hammering out a haircut deal that is expected to see bondholders take a 50% cut on face value of government bonds and lower coupons.
The talks have been punctuated with disagreements, with the IIF leaving the table after progress on the deal stalled. However, the two sides are soon expected to reach a compromise.
Olli Rehn, the European Union’s economic commissioner, told Reuters: “We’re quite close to a deal between the Greek government and the private creditor community on an agreement on private-sector involvement in Greece.
“I would expect that would be concluded in the coming days, preferably still in January rather than in February.” (article continues below)
But Chris Bowie, manager of the £247.5m Ignis Corporate Bond fund, says the likely deal will be insufficient to put Greece on the path to economic health.
The haircut aims to reduce Greece’s debt level to no more than 120% of GDP. Bowie argues that this ratio is still too high, given the country’s poor tax collection system and weak economic growth.
“The Greek haircut needs to be 75% for it to be sustainable. Even if they do it at 50% this time, they’re going to have to come back and do it again at some point,” the manager says.
“It might kick the can down the road for two years but ultimately the problem will not be solved.”
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