Mike Turner, head of Global Strategy and Asset Allocation at Aberdeen Asset Management, is dismissive of last week's PSI deal on Greek debt.
What is woefully lacking in all this is a credible plan for rejuvenation and growth in Greece (and Europe). More specifically there needs to be improvements in relative competitiveness to ensure that the chronic current account imbalances which sit at the heart of the crisis continue to decline. Without action to stimulate growth, austerity alone will worsen the problem and lead to massive social dislocation. There is only so much that the Greek people can and should shoulder.
This precarious situation is reflected through how the new Greek bonds that each investor will receive on Monday as part of the exchange are expected to trade. “Grey market” data suggests the bonds will yield around 18-21% compared to the yield on the existing bonds of 39%. However, this is still far higher than the yields of other peripheral country bonds, such as Portugal and Spain.
So Friday’s events are certainly not the solution to Greece’s problems and are arguably just another fudge providing time for policymakers to realise that more radical action is required. The risks of the country exiting the Eurozone continue to increase and if they do, hopefully it will be a managed exit.
At the moment markets have not really reacted to these latest developments. Equity markets have moved very little so far since the announcement, indicating a successful exchange was priced in. However, the unresolved structural problems in Greece and the wider European economy mean markets will remain volatile and we could well experience another correction as the remaining acts of this Greek tragedy are played out.