Greece will default by December – hedge fund manager
Published 23/09/2011 | 15:28
Greece will default by the end of the year, a leading US hedge fund manager told a conference in Dublin today.
The comments from Marshall Auerback of Colarado-based Madison Street Partners, came on growing fears of a default with Greek Finance Minister Evangelos Venizelos quoted in two newspapers as saying that an orderly default is on the cards.
This would result in a 50pc haircuts for bondholders and is one of three possibilities being discussed to resolve the eurozone country’s woes.
Although officials later played down the reports calling them a distraction, a default is looking increasingly likely.
“I think it will default by December,” Mr Auerback told a conference in Dublin today. “That will give them enough time to have a plan in place to recapitalise the exposed banks and minimise the contagion.
But he added that European authorities can act to save Ireland and the other peripheral countries from a similar fate.
He dismissed the current approach to resolving the crisis as unworkable and said that trying to "internally devalue" the economy by cutting wages in order to improve exports was a sure path to high unemployment, low growth and "fool's gold prosperity".
Instead, Mr Auerback suggested that the ECB should immediately distribute €1trn of newly created, debt-free money to all eurozone governments on a per capita basis with the condition that this money was only used to pay down government debt. This should then be done on an annual basis until the crisis was resolved.
While Mr Auerback admitted that there were political problems with the implementation of such a measure, saying that the current approach to the crisis is more "moral" than is is "economic", he said that recent meetings with those closely tied to the ECB has indicated to him that there might be a game change soon as these officials are seeing that tentative bond purchases coupled with austerity do not work.
He also said that if tensions in Europe reach breaking point Ireland should consider exiting the eurozone, but he insisted that this would be extremely painful and should only be thought of as a "nuclear option".
Professor Ray Kinsella of UCD, speaking at the same conference, said that Ireland should simply exit the eurozone now.
Mr Kinsella said that the markets were already pricing in a Greek default and that the European authorities had "lost all credibility".
He said that Ireland should simply exit the single currency now, restructure it's debts and establish an exchange-rate peg.