Greece searches for the escape hatch

By Alex Brummer for the Daily Mail
Updated: 04:24 EDT, 13 May 2011

Until the last few days it was verboten to suggest that Greece was in such deep trouble that it would have to cut the face value of its debt, secede from the euro and/or restore the drachma.

But with Athens having to pay up to 25% to borrow and the deficit piling up, as the economy refused to respond to the shock treatment, anything now looks possible.

The International Monetary Fund's response to the problem is to tell Greece to speed up its £44bn privatisation plans on the grounds that this would underpin the government's credibility.

Maybe, but moving assets from the public arena to the private sector is not easy in the best of times and considerable technical difficulties need to be overcome.

This does not look like an immediate answer which will restore confidence even if the extent of privatisation were to be rapidly speeded up.

The only possibility is that the increased surety might support extra loans which could tide creditors over until the reforms are delivered - if ever.

Much more relevant is a Reuters survey of leading fund managers and economists.

Both groups overwhelmingly believe that Greece will have to restructure its debt before the end of this year and the haircut could be as high as 70% with the median around 55%.

In plain English that means that Greece's euro denominated debt is worth less than half the number printed on the bond certificates.

That is enough to lead to some very queasy stomachs in Europe's banks which hold great piles of Greek debt on their books.

It will also place considerable pressure on the European Central Bank which is short of capital.

The pressures on the banking system have been anticipated but the great fear is that, as was the case during the Lehman disaster, there is some institution out there, which no one has thought about, which is heavily exposed and could fail, sending shock waves across the system.

Moreover, if Greece were to get away with cutting the value of its debt then it is hard to believe that other struggling eurozone countries would not want to take the same route.

The euro crisis is reaching a tipping point and markets are running scared.

Ringing changes

BT chief executive Ian Livingston has been engaged in a long battle with the company's past. This has involved sorting out the rotten accounting in the Global Services division, fighting off the pensions regulator, belatedly catching the broadband train and cutting costs.

As a result of this titanic effort he has brought the company back into the black and has just increased the dividend by 9%. This is a creditable performance. He now needs to show that he can really grow the company.

There are some incipient signs of success. New Global Services clients are being picked up in Latin America and across the world.

BT Vision, which has struggled to make an impact, now has 600,000 customers (a long way from Sky's 10m). And even traditional copper phone lines are having a bit of a renaissance. It has also garnered another chunk of the broadband market but needs to make sure the high speed revolution does not lose momentum.

Perhaps, the most important change is the turnaround in the pensions deficit. Livingston must offer the government a big thank you.

The switch from retail prices inflation adjustment to consumer prices looks to be worth £3bn to the pension fund. Despite this and the favourable first court ruling on the Crown Guarantee, the Pensions regulator is still sitting on the company's shoulders.

The market has made up its own mind and lifted the shares strongly as Livingston has got to grips with the company's problems. As one of its army of small investors I can lift a glass to that.

Air wars

The peace deal between British Airways and the Unite air crews union has been a long time coming.

It is in the interests of the union to suggest chief executive Keith Williams must take the credit.

But the reality is that most of the hard won concessions were secured by the real boss Willie Walsh who now heads parent the International Airlines Group (IAG).

Less important than who was responsible is making sure there is no frisson between Williams and Walsh.

He needs to get on with the task of delivering the integration savings with Iberia, returning BA to profit and dividends and adding new carriers - with Portuguese airline TAP a possible target - to IAG.

A line has been drawn under smoked-filled rooms and courtroom confrontations. But you can never tell.