‘At least one’ eurozone state to renegotiate debt

Fidelity Worldwide Investment’s head of global equities forecast that at least one of the eurozone’s 17 members will have to renegotiate its debt at a loss to bondholders as the eurozone’s debt crisis rumbles on.

“I don’t think we are quite finished with the European crisis and I think there will have to be another rescheduling of the debt programmes,” said Richard Lewis, who helps oversee $261bn (€189.3bn) from London, in a phone interview this week.

“The resolution of the crisis lies in realistic haircuts.”

The Euro Stoxx 50 Index has jumped more than 20% from this year’s low on Jun 24 and government bonds from Italy to Spain and Greece have rallied amid optimism the crisis is coming to an end.

Five nations have sought bailouts from the rest of the eurozone since 2010.

European Central Bank President Mario Draghi has underpinned markets by pledging to protect the single currency while the eurozone’s economic recovery continues to take hold.

“For a final resolution of this crisis, there should be recognition that there were errors on both sides,” Lewis said.

“There are still many situations where bankers are extending and pretending. There will be a dead hand on economic activity in the area. You are keeping zombie situations alive.”

Fidelity Worldwide Investment manages funds for investors outside the US and Canada.

Greece carried out the largest sovereign-debt restructuring in history in Feb 2012.

Private-sector investors agreed to take a 53.5% loss on the face value of their bond holdings, reducing the country’s debt burden, which stood at 170.3% of gross domestic product at the end of 2011.

Greece still has additional financing needs even though the other eurozone members have pledged it €240bn of loans since 2010.

Lewis said “certainly Greece again, probably Portugal,” when asked which nations may face haircuts.

— Bloomberg