Fidelity Worldwide Investment’s head of global equities said that at least one of the currency zone’s 17 members will have to renegotiate its debt at a loss to bondholders as the euro area’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 programs,” Richard Lewis, who helps oversee $261 billion from London, said 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 percent from this year’s low on June 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 euro zone since 2010. European Central Bank President Mario Draghi has underpinned markets by pledging to protect the euro while the bloc’s economic recovery takes 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 U.S. and Canada.
Greece carried out the largest sovereign-debt restructuring in history in February 2012. Private-sector investors agreed to take a 53.5 percent loss on the face value of their bond holdings, reducing the country’s debt burden, which stood at 170.3 percent of gross domestic product at the end of 2011.
The Mediterranean nation still has additional financing needs even though the other euro-zone members have pledged it 240 billion euros ($331 billion) of loans since 2010.
Lewis said “certainly Greece again, probably Portugal,” when asked which nations may face haircuts.