Is Greek Debt Unpayable? A Reading List -- Barron's Blog

        By Dimitra DeFotis
        The Global X FTSE Greece 20 ETF ( GREK) is poised to finish the week with a nearly 4.5% loss as the National Bank of Greece ( NBG) and other financial institutions reopened, but the Greek parliament buckled to austerity guidelines required for a third bailout.
        The European Central Bank expanded its energency liquidity to Greek banks, calming investor nerves and probably even those of Greeks waiting in bank lines. But the Greek debt load -- EUR310 billion ($339 billion) -- is unpayable, unsustainable and needs to be restructured, writes Krishna Memani, chief investment officer at OppenheimerFunds. In a recent blog post, he said:
        "Greek Prime Minister Alexis Tsipras recognizes he overplayed a weak hand. If he had acted like a statesman over the past six months, as opposed to a vote-gathering politician, and had he been advised by real politicians, as opposed to game theoretic academicians, he and Greece most certainly would have gotten a better deal. Alas, he overplayed his hand, and Greece and the Greeks will pay for it. I am quite sure his political obituaries have already been written.
        And CIO Memani didn't stop there. He thinks the euro itself cannot survive without a Greek debt restructuring.
        "Debt write-down is the only humane mechanism available to bring countries closer together when you have a currency union without a fiscal union, and a diverse group of economies at different levels of productivity and debt load."
        Memani is not the only one banging the drum for a debt haircut. In a recent essay, Alberto Gallo, head of macro-credit research at the Royal Bank of Scotland, wrote in The Wall Street Journal recently that a Grexit from the euro would cost EUR227 billion ($250 billion) with one drachma equaling half a euro. Debt extensions and a haricut could cost as much as EUR60 billion, while a hypothetical one-off haircut to a 100% debt-to-GDP ratio would cost around EUR130 billion. The latter scenarios, of course, would include a dose of moral hazard. He wrote:
        "Where debt isn't sustainable, creditors must consider a renegotiation. And just as with private companies, debt renegotiation may mean a second chance for the firm to prosper and for creditors to recover their capital. The numbers speak clearly: If Greece leaves the euro, we are all losers."
        Shares of the National Bank of Greece are down nearly 3% this week including a nearly 7% decline today. More broadly, the SPDR S&P Emerging Europe ETF ( GUR) is down 1.3% today and down nearly 6% this week. The iShares MSCI Emerging Markets ETF ( EEM) is down 1.6% today, and down more than 6% this week.
        For more reading:
        " If Greece Leaves, We All Lose," by Alberto Galli at the Royal Bank of Scotland
        " Let's Hope the Greek Deal Isn't a Versailles Mistake," by Krishna Memani on the OppenheimerFunds blog.
        " 2 Wall Street CEOs Speak Out As Greece Ups Austerity," by Dimitra DeFotis on Barron's Emerging Markets Daily blog.
        " Personalities Clashing Over How to Handle New Greek Bailout" by Andrew Higgins in The New York Times.
        " The Reopening of Greek Banks," by The Economist.
        (END) Dow Jones Newswires

        July 24, 2015 15:05 ET (19:05 GMT)

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