Greece being kept in euro ‘while EU banks retrieve money
Greece is only being kept in the euro to enable banks in northern Europe to retrieve money they have in the stricken nation, said Old Mutual’s Christine Johnson.
Johnson, manager of the group’s Corporate Bond fund, said Greece has so far escaped ejection from the eurozone because of the exposure of French banks to its sovereign debt.
“Greece has not remained in the eurozone because it is beneficial to Greek voters,” she said.
“It has been kept there while northern European institutions retrieve any money they may have in the country. Much of the money lent so far to ‘bail out Greece’ has flowed back out to service debts held elsewhere, most notably in France.”
Johnson, running one of the most successful corporate bond funds of the last three years, warned it is now France – which has poorly capitalised banks with large holdings of Greek debt – which is compromising the European financial system.
“It is France which would have difficulty withstanding a Greek capitulation,” she said.
“The Big Three French banks (Crédit Agricole, Société Générale and BNP) collectively own just less than €400bn of peripheral non-sovereign loans, and within that, around €42bn of non-sovereign Greek loan exposure. The most vulnerable is Crédit Agricole, which through its subsidiary Emporiki owns more than €25bn in Greek loans.”
Speaking as bond yields in Spain today neared a record high, and as French and Italian yields also rose, Johnson added if the Greeks were either allowed to leave, or if the country was kept in the eurozone, French banks remain undercapitalised and vulnerable.
“The regulator will be pushing banks to claw back capital however they can. With equity levels where they are, that can only mean one thing: bondholders. I vote not to be one of them.”
This article was first published on Investment Week