GO
Loading...

Restructure Greek Debt or Face Inflation: Analysts

Euro zone politicians should accept that Greece is bankrupt and allow it to restructure its sovereign debt, or risk inflation getting out of control, Puru Saxena, CEO of Puru Saxena Weakth Management, told CNBC Tuesday.

View over the caldera of Santorini in Greece.
Tom Pfeiffer | Getty Images
View over the caldera of Santorini in Greece.

On Monday, Greek and European officials denied that restructuring of the debt was on the cards, after reports that the Balkan country is considering renegotiating its debt sent jitters through markets.

"It is clear to me that Greece is already bankrupt, there is no way they can service this debt and the sooner the politicians come to this realisation the easier it will be to fix this problem," Saxena said in an interview.

If politicians continue to "kick the can down the road," the end result would be worse, he warned.

"The easiest way to solve the debt crisis is to restructure the debt, take the pain where it belongs; the bondholders should take the losses, take the pain," Saxena added.

If politicians try to save the bondholders, "the end result is going to be disastrous," he warned.

"There is going to be such high inflation all over the world that people are going to struggle to make ends meet, and that is already happening in the developing world."

Meanwhile, a Greek newspaper quoted a senior European Commission official as saying that Greece has accepted that it cannot avoid restructuring its debt, according to a Reuters report.

Some analysts have estimated that Greece's debt burden will grow to around 160 percent of gross domestic product from the current level of over 120 percent.

The time to restructure may be now, not when the world goes through another economic slowdown, Simon Derrick, chief currency strategist at Bank of New York Mellon, told CNBC.

Over the past years, in Europe there has been destruction of capacity, and a symptom of this is an increase in prices, Stephane Deo, UBS economist, told CNBC.

"Inflation is picking up now, even core inflation," Deo said.

Interest rates are likely to go up even more in the euro zone in the summer or fall, he added.

"I think it's not a question of if, now, it's a question of when and it's probably going to be some time between July and September."

But Deo does not expect a restructuring of Greek debt any time soon, because European banks would have too much to lose and economies in the euro zone would be affected badly.

"I would be very surprised if there was a default in the near future," he said.

"The debt has been restructured already… de facto you had a mini-restructuring by the back door of the money that was lent by the European Union to Greece."

In March, euro zone leaders decided to cut the interest rate on the bailout package by one percentage point to 4.2 percent and to extend its maturity to seven and a half years from three years.

Contact Europe: Economy

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    › Learn More