Tags: Citigroup | Greece | Default

Citigroup’s Shoup: Greece Should Default Right Now

Tuesday, 07 February 2012 07:46 AM

If there's no way Greece can avoid defaulting on its debts, it should do so now, while the U.S. economy is on the upswing, stock prices are climbing and sentiment is rather strong, says Citigroup credit analyst Jason Shoup.

In the U.S., the economy added a net 243,000 nonfarm payrolls to the economy in January, well above market expectations, while stock prices have been up, and manufacturing is showing signs of life.

Thus a Greek default now would minimize the damage on the global economy.

"In the last six months, there's probably been no better time to let Greece strategically default than right now,” says Shoup, according to CNBC.

Greece is currently seeking to restructure its debts with private lenders, and a haircut there is likely.

Larger-scale debt obligations may require similar negotiations as well.

"Letting Greece default either after a (Private Sector Involvement) haircut or in lieu of may have been unthinkable just a few months ago, but it wouldn't surprise us if resistance to such an idea may be weakening in the halls of Brussels and Frankfurt," Shoup says.

While the probability of a Greek restructuring on several of its obligations is a foregone conclusion for many economists, worries persist that larger European countries may feel the pressure to follow suit, which is why policy makers are keen on keeping Greece in the eurozone.

However, public officials in Europe are now warning that Greece may default on its sovereign bonds, including Jean-Claude Juncker, head of the Eurogroup of finance ministers.

In an advance copy of comments to news weekly Der Spiegel, Jean-Claude Juncker says Greece will lose support from other eurozone members if it doesn't work out a deal with private lenders as well as accept austerity measures needed to right its economy.

"If we were to establish that everything has gone wrong in Greece, there would be no new program, and that would mean that in March they have to declare bankruptcy," Juncker tells Der Speigel, as reported by Reuters.

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Tuesday, 07 February 2012 07:46 AM
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