Bloomberg Businessweek

Greece Likely to Default Within Three Years
Bloomberg BusinessWeek

Greece is likely to default within three years because budget-cutting measures won’t be enough to reduce the nation’s sovereign debt burden, Pacific Investment Management Co. Chief Executive Officer Mohamed A. El-Erian said.

Europe’s sovereign debt crisis erupted at the end of 2009 after Greece’s newly elected socialist government said the budget deficit was twice as big as the previous administration had disclosed. The European Union and International Monetary Fund approved the aid package on May 2 in exchange for the Greek government agreeing to cut public-sector wages and pensions and raise taxes on fuel, alcohol and cigarettes.

“I have never seen 11 percent of GDP being delivered” under the current program assumptions, El Erian said. The debt burden at the end of the process is likely to be higher than it was at the beginning, he said.

Greek bonds fell, with the 10-year bond yield increasing one basis point to 9.42 percent today, leaving the gap with similar German notes at 6.88 percentage points.