Asset managers face biggest haircut if Greece defaults

Asset managers stand to take the biggest haircut should Greece vote against a tough austerity plan required for the country to receive its next tranche of financial aid. Without the aid from the European Union and the International Monetary Fund the country would face a default next month.

The Greek parliament will debate the austerity plan on Wednesday and Thursday before a vote that is likely to be very close. Austerity measures involve steep budget cuts and the sale of state owned assets and have generated widespread popular opposition.

Asset managers hold about 43% of Greek sovereign debt, commercial banks have 27%, the European Central Bank 14% and other national investors 16%.

Barry O’Neill, head of foreign exchange sales at Clear Currency, a foreign exchange brokerage boutique, said the proportion of Greek sovereign debt held by asset managers is high but not surprising. “There is more and more involvement of asset managers in different types of products,” he said.

The prospect of a no vote has unsettled markets and potentially threatens the euro. European officials have started discussions on contingency plans should the Greek parliament reject the austerity measures.

Jürgen Stark, ECB executive board member, said it will be the end of aid to Greece after July if the plan is not approved.

The German finance minister has also has warned the Greek parliament against letting austerity measures fail. But so far, Greek legislators do not appear willing to give up anything, O’Neil said.

France and Germany are trying hard to find ways to ease Greece’s immediate debt burden by extending the maturity of its sovereign debt. French banks have offered to rollover Greek debt holdings for up to 30 years. German banks support the idea but would prefer shorter maturities. An agreement would also need to be reached with other holders of Greek sovereign debt which on paper looks unlikely, leading towards a default. “We’ve come to the stage where it is feasible it (the bailout effort) might fall. It’s the last chance saloon,” said O’Neil.

Analysts say the consequences of a default are unpredictable. Doomsday scenarios are not worth thinking about, said O’Neil, though the euro will be under pressure as markets focus on other endangered parts of the eurozone. “But I don’t think Greece is the cornerstone of eurozone. The euro can live without Greece,” he said.

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