Tags: Pimco | Gross | Soft | Default | Solution | European | Debt

Pimco's Gross: 'Soft Default' Represents Solution to European Debt

By Dan Weil   |   Thursday, 26 May 2011 08:10 AM

The big question for bondholders of troubled European nations such as Greece, Portugal and Ireland is whether they will have to forgive some of the debt. Star Pimco bond fund manager Bill Gross says the answer is "yes."

"We wouldn't go so far as to suggest that Greece or any other country leave the euro," he tells CNBC.

"What I think needs to be done and what the market is consolidating on is for private debtholders and euro-land banks to take a debt extension or some kind of soft default that alleviates the burden for these countries," he said.

gross200.jpg
Pimco's Bill Gross
(Pimco photo)
Gross understands the concern of Germany, which objects to the fact that it has to bail out weak nations that were fiscally irresponsible while it was minding its “p”s and “q”s.

"But if they want a consolidated solution, that's really the way to go," he says.

The euro constrains what the weak nations can do, Gross says. "Countries like Greece and Ireland are subject to the euro currency and can't lower their high debt to GDP ratio by offering interest rates in the low to negative range such that a country can pay for its debt by real growth."

Greece’s debt totals 144 percent of its GDP.

Gross isn’t the only one contemplating a Greek default. A Bloomberg poll of international investors shows that 85 percent expect that outcome.

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The big question for bondholders of troubled European nations such as Greece, Portugal and Ireland is whether they will have to forgive some of the debt. Star Pimco bond fund manager Bill Gross says the answer is yes. We wouldn't go so far as to suggest that Greece or...
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