Greek debt still too risky, politically

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We still believe that in the end, the Greek government will agree to the terms of the creditors regarding taxes, pensions, privatisations etc. in order for the next tranche of €7.2bn to be released. Although we regard a Greek exit from the eurozone as unlikely and with limited contagion risk towards the rest of the eurozone, we avoid holding Greek debt at this juncture due to the high political instability.

Yesterday evening Greece issued a decree according to which all local governments have to transfer their available cash to the Central Bank of Greece due to “extremely urgent and unforeseen needs”. According to the Greek press, Athens expects to raise ca. €2bn in additional funding although this amount is unlikely to solve the problems even in the near term.

We would like to remind that Greece has to pay €200m to the International Monetary Fund (IMF) on 1 May as well as €1.4bn in maturing Treasury bills on 8 May, while pensions and public sector salaries amount to ca. €1.7bn. The risk of missed payment is pushed down the road towards month-end or possibly beginning of May, but the solution found signal desperation and is not viable; the issue will arise sooner rather than later.

 

Eirini Tsekeridou is a fixed income analyst at Julius Baer

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