A rosy-fingered dawn is still far off for Greece, argues Mohamed El-Erian.
The Pimco CEO writes in an op-ed today that last week’s restructuring is almost certain to be “found wanting” and that a second round will be needed.
“Were it to be fully implemented – highly unlikely – the result would still be an unsustainable debt stock of 120 per cent of gross domestic product in 2020. With such a prospect, new private capital will not engage in Greece, robbing the country of the oxygen needed for investment, growth, competitiveness and jobs.”
When the second restructuring — El-Erian calls it “PSI (Public Sector Involvement) 2” — comes, Greece will be in an even worse position than it was Friday, since most haircut recipients were private. Given that the creditors on its latest loans are from the public sector, any disruption in payments could quickly spiral out of control. Combined with upcoming elections, there is likely to be another year of uncertainty on the Attic coast:
“What last week’s debt reduction deal really delivers is a bit more time for others to reposition for the next, more disruptive, act in this unfolding Greek drama.”