Tuesday, March 13, 2012

The Greek debt drama has merely paused for an interval

by Mohamed El-Erian

Financial Times

March 13, 2012

Many investors wish to wave a final goodbye to the disruption the Greek debt crisis has had on market valuations. Meanwhile, European policymakers are already trying to move away from the dramas on the periphery and focus on restoring growth in Europe. Both impulses are understandable. Unfortunately, they are premature.

The debt reduction agreement put in place last week is the biggest sovereign restructuring ever. Yet it only goes part of the way in helping Greece overcome its core problem of too much debt and too little growth. And it won’t be long before this latest deal also comes under pressure. So here is what to look for, and what to do about it.

With debt reduction only one of three components of the recent €130bn bailout, expect more details this week on the other two. On Tuesday and Thursday we will find out how much money the European Union and the International Monetary Fund are willing to release to Athens upfront. Markets are hoping for heavily front-loaded payments, while official creditors prefer them to be more back-loaded.


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