Nobel Winner Pissarides Says No Default, But Big Haircut

Investors in Greece will take a bath, says Nobel winner Christopher Pissarides

As Greek leaders are admitting that the country’s investors won’t get paid back all they are owed, Cyprus’ Nobel Prize Winner for Economics Christopher Pissarides has joined the bandwagon of analysts who say the so-called “haircut” could be a 50 percent loss, although he said the country will not default, a prospect many other pundits say is still unavoidable in one form or another.

“I am very optimistic that there will be some kind of a rescue plan that will not involve a full default,” Pissarides, an economist and the first Cypriot to win the Nobel Prize, said an interview in Seoul, Bloomberg news agency reported. “But I don’t think the haircut that has been applied so far, the discount on Greek debt is going to be enough.”

Greece is surviving on a series of $152 billion bailout loans from the Troika of the European Union-International Monetary Fund-European Central Bank, but those have failed.   A second bailout of $157 billion agreed upon in July foresaw a 21 percent haircut for investors, but a continuing deep recession has forced Greek leaders to amp up the discount the country will take for itself. Luxembourg’s Prime Minister Jean-Claude Juncker, who is also the head of the Eurozone, the 17 countries using the euro as a currency, said through a spokesman on Oct. 11 that “haircuts” may exceed 21 percent. “Without knowing what the market premium was currently, I would have said about 50 percent is probably what is likely,” Pissarides said.

Pissarides, who won the economics prize in 2010 and is a professor at the London School of Economics, said European leaders deserve “a high grade for determination but I won’t give them a high grade for quick action.” He added, “If it were left alone by its European partners then it would default, there is no alternative. It doesn’t look like it is going to be left alone by the European partners, so I am very optimistic that there will be some kind of a rescue plan that will not involve a full default.”

He also said the European Union and the euro should survive. “In fact, I have a fraction of my savings in the euro and I intend to keep them there,” Pissarides said.

An Oct. 23 summit of euro leaders has been set as a deadline for a breakthrough in combating the crisis. European Commission President Jose Barroso is calling for a reinforcement of crisis- hit banks, the payout of a sixth loan to Greece and a faster start for a permanent rescue fund to master the crisis.Europe’s debt crisis has reached “a systemic dimension” and needs to be tackled “decisively,” European Central Bank President Jean-Claude Trichet said.

While the politicians and economists are firing off opinions, the deep pay cuts, big tax hikes, slashed pensions and layoffs of 30,000 workers in Greece as a condition of getting the loans have set off a series of strikes, protests, and deepening social unrest. State workers blocked access to the Finance Ministry’s main building in central Athens. Parliament votes next week on Prime Minister George Papandreou’s new wave of austerity measures.


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