Greece cannot avoid default: Mesirow economist

By Wanfeng Zhou

NEW YORK (BestGrowthStock) – The unprecedented 110 billion euro bailout package cannot prevent Greece from defaulting on its debt and the euro may fall below $1.25 in a matter of weeks, a senior economist at Mesirow Financial said.

“There’s really no way Greece can make it other than default,” said Adolfo Laurenti, deputy chief economist in Chicago told Reuters in an interview on Wednesday. “I think the bailout was the premise to go to a default of Greece.”

Mesirow Financial, an investment firm in Chicago, had assets under management of about $37 billion at the end of 2009.

European officials agreed over the weekend a three-year loan package for Greece worth 110 billion euros ($140.9 billion), but markets remain skeptical about the plan and worried about other vulnerable euro-zone states such as Portugal and Spain.

The euro fell (Read more about the trembling euro. ) to a 14-month low of $1.2803 on electronic trading platform EBS on Wednesday.

Laurenti said Greece is still spending more money than they can afford to raise and is set to accumulate a deficit of about 50 billion euros in the next three years.

In addition, Greece has to roll over about 70 billion euros in debt over the coming two years, he said.

“That’s back-of-the-envelope math. The 110 billion euros (package) is a lot of money and it’s not enough,” Laurenti said.

“I think the big mistake by the IMF (International Monetary Fund) and Europe has been to try to fool the markets and tell them that this is really the ending. It’s not,” he said.

While an eventual default cannot be avoided, Laurenti said Greece “cannot default now” because of the heavy exposure by French and German banks and the risk of contagion to Spain, Portugal, Italy and other euro zone countries.

The EU/IMF rescue package, he said, helps European policymakers gain some time and create a buffer and an opportunity for the French and German banks to get out.

“Hopefully, the economy would be in a much better shape in two years to absorb a Greek default than we’re in now where the recovery is still nascent and you really don’t want to take a chance,” he added.


Laurenti said he expects the euro to dip below $1.25. “It’ll be sooner rather than later. It might be a matter of weeks,” he said.

Policymakers, including IMF chief Dominique Strauss-Kahn and the European Central Bank’s Axel Weber, warned of the dangers of contagion to other high-debt euro zone nations.

The European Central Bank meets on Thursday and markets are especially keen on any clues whether the ECB is moving toward the use of its “nuclear option” — a purchase of Greek and possibly other countries’ government bonds to halt the debt crisis that is threatening the euro’s survival.

“That would basically be the end of the ECB the way we know it,” Laurenti said. “If the ECB were to decide to buy (government) bonds, basically monetizing the debt of some of these countries, it means that all the hard-won credibility and discipline that the ECB has been trying to enforce would be lost overnight.”

“If that happens, I could see easily the euro go to parity against the dollar,” he said.


Greece cannot avoid default: Mesirow economist