Greece needs to default, but not yet

Greek_flagGreece should go ahead and default - but only once other peripheral economies and European banks have been allowed to achieve a strong enough position to withstand the financial shock it would cause, says Skandia Investment Group's Rupert Watson, head of asset allocation.

Watson said the Greek problem is large and its debt needs to be reduced. However, if this were to be attempted this year, the cost to the Greek and European economy and markets could be huge. As a result it is better that Greece is given more time to improve its finances.

“In short we think that Greece needs to default, but not yet,” said Watson.

But he added that a default is less likely after a the reshuffled government survived a recent vote of confidence, and this means it is likely that Budgetary plans for tax rises, spending cuts and privatisations will be put into effect.

And as Germany’s proposed idea of a voluntary roll-over of debt for Greece is currently unclear the idea of a default remains less likely, especially when a Greek default is not in the interests of the EU or Greek banking systems.

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