The head of Pimco, the world’s biggest bond trader, has warned that Greece is still likely to default on its debts, despite Prime Minister George Papandreou winning a crucial vote of confidence late on Tuesday night.
Mohamed El-Erian, chief executive of Pimco, ratcheted up the pressure on Europe’s leaders by predicting that other eurozone members could also follow Greece into default territory.
“For the next three years, we’re going to see different economies work out different problems. For European economies, especially Greece, it would be through default,” El-Erian told reporters in Taipei on Wednesday via a video conference, according to Reuters.
The warning came as shares slid across Europe, as attention shifted to Papandreou’s next challenge — persuading the Greek Parliament to approve a new package of asset sales and spending cuts next week. In London, the FTSE 100 fell 20 points in early trading and the euro also sagged, as experts warned that Papandreou’s narrow victory did little to address the wider eurozone crisis.
Papandreou won Tuesday’s vote of confidence by 155 votes to 143, with every member of the governing socialist party supporting him.
“The result shows that Papandreou has the backing of his party. We now expect that the unity shown last night will be repeated in next week’s austerity vote,” said Joshua Raymond, market strategist at City Index.
Raymond added that Wednesday’s lacklustre market reaction was understandable, after traders pushed the FTSE 100 up by 1.5% on Tuesday amid optimism that Papandreou would survive.
Greece must approve Papandreou’s austerity plan next week to qualify for an immediate €12-billion lifeline, and then a second bailout worth over €100-billion. There is doubt, though, over whether the measures can be imposed on an increasingly unhappy population.
“Everything depends on Greece implementing the measures,” former chancellor Lord Lawson told the BBC’s Today Programme. “Legislating is one thing, implementing is another, and Greece’s history of implementation is not a happy one,” Lawson added.
Jane Foley of Rabobank International agreed, saying there was “widespread scepticism” in the bond markets about the ability of the Greek political system to implement the reform.
Crowds gathered outside the Greek Parliament ahead of the vote of confidence, with some shouting “we give a vote of no confidence” at the lawmakers gathered inside. There were some clashes between protestors and riot police, who reportedly deployed tear gas at one point. – guardian.co.uk