DAVOS, Switzerland (Reuters) - Billionaire investor George Soros said on Wednesday Greek debt “might” be worth buying -- although he does not trade -- as he was confident Greece will do whatever it needs to stay in the euro zone.
Soros also told Reuters it was too early for governments to withdraw billions of dollars of economic stimulus support as it would raise the risk of a double dip.
Concern about Greece’s ability to reduce its huge budget deficit has triggered credit ratings downgrades, led to a sharp sell-off in the country’s government debt and even raised speculation as to whether it could be forced out of the euro zone.
When asked if he would buy Greek debt at current spread levels, Soros told Reuters Insider television: “I was thinking about it actually. I think Greece will do whatever it takes because Greece can’t afford to fall out. It has such benefits from being able to use the credit of the European Central Bank for repo so Greece will do what it needs to do.”
The 10-year Greek/German government bond yield spread hit a euro lifetime high of 373 basis point on Wednesday and the cost of insuring Greece debt against default hit a record 370 bps as investors grew increasingly concerned about its ability to service debt obligations.
Asked if he might be a buyer, Soros said: “you might,” adding that he did not trade.
Greece has said it would reduce its budget deficit this year to 8.7 percent of GDP -- from an estimated 12.7 percent in 2009 -- through welfare cuts, tax reforms and savings on public-sector wages.
A stability plan aims to bring the shortfall to 2.8 percent in 2012, within the European Union’s 3 percent limit, but markets doubt whether proposed spending cuts are realistic in a country where popular protest often stymies reforms.
“I think Greece will fulfill the conditions that the European Central Bank imposes in order to be in ... the euro,” Soros said.
“I am confident Greece will pull through although there will be some moments when there’s pressure put on Greece from the European Union. The attraction of meeting the conditions are so great there is really no viable alternative.”
Soros said economic stimulus must be kept in place to keep recovery on track although the markets were worried about sovereign default risks.
“I think actually there’s plenty of room for countries like the U.S. to increase the national debt but it’s of course very undesirable. However, reducing it at the cost of bringing on a slowdown will be counterproductive. It’s more a question of spending of the money wisely,” he said.
“We’re not out of the woods and of course increasing resistance to stimulus and debt makes a double dip, particularly in the U.S. where households still are indebted, more likely it was than let’s say three months ago.”
Soros said U.S. President Barack Obama’s proposals on banking reforms still did not remove the issue of “too big to fail.”
“There are investment banks that are too big to fail and they all now enjoy implicit guarantee. And to claim that the guarantee is not there is not credible. It will only become credible after a number of years when actually banks are allowed to fail,” he said.
Obama jolted markets this month with proposals to force commercial banks to cut ties with hedge funds and private equity funds and stop proprietary trading, and to make the financial sector pay for a massive taxpayer bailout.
Editing by Mike Peacock