Alexis Tsipras, Greece's new prime minister, has promised the government will demand that its European creditors reduce the 240 billion euro debt burden his country faces thanks to the bailout fellow European nations provided.
But don't get too excited over Samaras' rhetoric, says star investor Wilbur Ross. The European Union is unlikely to accept a cut in Greece's debt, but it may accept a reduction of the interest rate on the debt, he told
CNBC.
"By August, they need 15 billion euros of debt repayment and interest payments on those loans," Ross said.
"Greece right now is paying about 8 billion euros a year in interest. The average rate is about 2.5 percent." If the lenders are willing to cut that rate in half, "that would save them 4 billion euros a year," Ross explained.
"They'll need some relief from the early maturities," he added. "I don't see that it's very likely they can pay the 15 billion just on their own, but I think everybody knows that. So effectively if you cut interest rates and postpone maturities, you've really cut the debt. Even though you're not cutting the nominal face amount of it. That's really how I think it'll play out."
He's actually encouraged by the quick formation of a government following Sunday's elections. And he pointed out that prior Prime Minister Antonis Samaras also offered harsh rhetoric before taking office, only to mellow once he was elected.
Ross noted that "there could be ugliness on a temporary basis."
Many economists have criticized European governments, particularly Germany, for following a policy of austerity that has limited economic growth. But that policy might change.
"Tsipras won because those who imposed austerity never thought about the effects of such drastic policies that impoverished millions of people," Paul De Grauwe, a professor at the London School of Economics and a former adviser to the European Commission, told
The New York Times.
"In a world where people are so hit, they just don’t remain passive. Their reaction is to turn to the politicians who will change the process."
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