Greece and Ireland will need to restructure their debts and Spain and Portugal may face doing so to survive Europe’s sovereign debt crisis, Harvard University professor Kenneth Rogoff said.
“I do think the eventual restructuring of two or three countries — Greece, Ireland, Portugal — is inevitable,” Rogoff said at an event at the German Finance Ministry in Berlin. It “may be called something else, for face-saving reasons.”
The comments by Rogoff, a former International Monetary Fund chief economist, reiterate his view that some euro-region members may have to restructure their debts and bond holders should be forced to take losses of as much as 40 percent to help the bloc overcome its debt crisis.
“It’s inescapable to have public and/or private debt restructured in all four countries” of Greece, Ireland, Portugal and Spain, he said. “The risk of waiting too long is that it gets bigger and it costs you more.”
Portugal’s 10-year bond yield reached 7.64 percent on Feb. 10, the most since the inception of the euro in 1999, and was at 7.47 percent as of 6:42 p.m. in Berlin. It first climbed above 7 percent on Nov. 10 and has been above that level since Feb. 4. Greece needed a rescue within 17 days of its 10-year yield breaching 7 percent on April 6, while Ireland lasted less than a month after it cracked that level in October.
“If Spain were to have a restructuring of central government debt, I don’t think it would end there” and countries including Belgium and others would be affected, Rogoff said. “Spain is just too big.”
Portugal will accept a financial bailout “within the next few weeks” as the cost of issuing debt becomes unsustainable, according to Axa Investment Managers, which oversees $714 billion in assets. Rogoff said in an interview with Frankfurter Allgemeine Zeitung published Feb. 10 that countries such as Greece and Portugal should be urged to leave the euro region for 10 to 15 years to help restore public finances.
Greece leaving the euro region “would be a sensible solution but I don’t think it will happen,” Rogoff said today. “It’s not on the table, but I think a default will be difficult to avert.”
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