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Capital Markets

Europe: Bond buyers brace for eurozone debt restructuring

Not if, but when; Debt burden numbers don’t lie

A full-scale European sovereign debt restructuring is nigh-on inevitable, say leading bond buyers. Speaking at Euromoney’s annual Bond Investors Congress in London, a series of international investors argued that it was now not a question of "if" but "when" and "how".

"It’s coming," said Louis Gargour, chief ­investment officer at London-based hedge fund LNG Capital. Speaking before a late-March meeting of eurozone leaders tasked with finding a permanent solution to the crisis, Gargour said that policymakers "will come up with too little, too late".

The numbers on the European debt burden don’t lie, said Sanjeev Handa, senior managing director and head of global public markets at TIAA-CREF, a New York-based pension fund. "The first problem is the amount of debt, the second the interest burden. If this were a corporate balance sheet the question would be ‘can you grow into it?’" he said. "The answer is no: the primary deficits are just too big."

As evidence: Greece’s debt-to-GDP ratio is set to climb to 150%, while its equivalent tax take is just 50% of Germany’s.

Majority expect rescheduling

Asked if some form of rescheduling was inevitable, just two members of a 400-strong audience of fixed-income specialists voted "no".

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