Barclays Wealth believes there is a 40% risk that politicians will continue to ‘muddle through poorly’ in their approach to the eurozone crisis – despite the Greek rescue package recently agreed – according to a senior figure at the financial institution.
Oliver Gregson, head of product development at the wealth management arm of Barclays, told Private Banker International that politicians still had not got to the root of the crisis.
Gregson said: “At the moment we are treating the symptoms, not the cause. The cause is low growth and low productivity in a number of these economies.”
He added that Barclays Wealth sees only a 5% chance of a speedy resolution to the crisis and assigns a 15% chance to the worst outcome, a disorderly default.
Willem Sels, UK head of investment strategy at HSBC Private Bank, said the success of the austerity programme depends on the ability of Greece – and the rest of the eurozone – to lift economic growth and competitiveness, as well as the fragile social fabric in Greece.
“The violent demonstrations in Athens in past weeks show that there is strong opposition to the programme already, and markets hence worry whether the commitment to austerity will hold for the many years that are needed to bring the debt back down to more sustainable levels.
“If not, further haircuts for private bondholders are possible in the future, and we believe markets will thus continue to price in a high probability of default.”
A deal to provide further emergency funding to Greece is in the process of being ratified by various European parliaments.
Under the terms of the package, Greece will receive €130bn ($175bn) of loans in return for implementing cuts to government spending worth 1.5% of GDP.
Private sector lenders will have to write off 53.5% of the money Greece owes them.