The Greek debt swap is now closed and procedures will be finalised over the weekend.
Many questions remain. Will the swap be enough to avoid default? What should investors think about the length of time needed for this deal? Will Portugal be next to follow?
Top fund managers give Citywire Global their verdict on the latest round in the Greek drama and offer answers to the unthinkable:
David Tan, Head of Fixed Income, JP Morgan AM
‘Ultimately, this latest deal (PSI plus bailout two) buys time. These packages are not a substitute for real adjustments that have to happen in the peripheral economies, but they can smooth the transition as adjustments in the real economy, and structural reforms to promote growth, cannot happen overnight.'
'The issue arises as to whether the same scenario may play out with Portuguese Government bonds. But eurozone governments have made it very clear that Greece’s PSI will be a one-off and we have no reason to doubt that they will honour their commitment to create a sufficient firebreak to protect Portugal.'
'Policy makers are aware that failure to honour their commitment will have far reaching consequences that go beyond Greece and Portugal.’
Paul Doyle, Head of Europe ex-UK Equities, Threadneedle AM
‘Clearly the successful PSI is a big positive. It removes default risk right now. It certainly doesn’t solve the problems of the Greek economy.'
'There can still be big problems, particularly with whether the Greek government can fund its internal (i.e. Greek) budget commitments. But I think external default is now off the agenda for a while.'
'Regarding Portugal, the fact that Portuguese yields are still high tells you there is little or no demand for Portuguese bonds, implying some kind of similar debt deal.‘
Tom Naughton, Prusik Investment Management
‘I think the best analogy is the film 127 Hours. When a boulder falls and pins his arm against the canyon wall, Aron Ralston is faced with the prospect of either dying from dehydration or cutting his own arm off – neither of which is appealing.'
'In the same way, eurozone countries are faced with the prospect of either austerity and slow growth leading to default in 3/5/10 years time (“dying of dehydration”) or exiting the euro/defaulting on debt/massive restructuring of the economy + welfare state (“cutting their arm off”).'