Greece will be forced into some form of default whatever the outcome of the current round of renegotiations. The consequences of that are unknown. But in the meantime bond markets continue to display remarkable resilience. These were the messages from speakers and delegates at the Euromoney Global Borrowers and Investors Forum 2011.
The forum once again attracted the major issuers, investors and intermediaries in international debt markets. Over 850 delegates attended over the two days. The Forum opened on Tuesday morning with Paul Fisher, Executive Director, Markets and Member of the Monetary Policy Committee at the Bank of England explaining the Bank’s position on monetary policy and inflation. “Monetary policy is currently a subject of great debate,” said Fisher. “More so than at any time since the start of the inflation targeting era nearly twenty years ago.” He mounted a nuanced but spirited defence of the Bank against its many critics for its repeated failure to meet its inflation target.
The opening panel focused on the ‘Public Debt Crisis’. Asked if the newly proposed Greek rescue package would be the last, just a handful of the audience voted “yes”. This was to set the tone. Growing taxpayer resistance coupled with political disagreement has brought much confusion to the Eurozone. Never before have the words ‘burden sharing’, ‘restructuring’ and ‘default’ been so frequently employed. Desmond Lachman of the American Enterprise Institute, was unwavering in his view that Greece should exit the euro. He warned, though, that if Greece’s debt is written down in a disorderly manner, contagion will spread to Portugal and Ireland leading to a banking crisis in Europe that would make Lehman pale in comparison. Paul Mills of the IMF highlighted the need to look at the reputational risks for bank funding markets following possible contagion. James Quigley of Bank of America Merrill Lynch argued that while the short-term pain would be severe, Europe would be better off in the long run.
Most of the leading debt managers of advanced economies took to the stage to explain how they were navigating the current situation. The US Treasury took the stage to argue that deadlock on Capitol Hill would not threaten the country’s standing as the world’s benchmark issuer. "Congress must and will raise the debt limit prior to Aug. 2,” said Mary John Miller who runs the US borrowing programme at the Treasury. Many in Congress are trying to link the debt limit to fiscal agreement. Even if fiscal agreement is not reached the debt limit must and will be raised. The United States will continue to meet its debt obligations as it has in the past."
On Wednesday, panels of corporate, emerging and emergent market, European and International supranational and agency borrowers took their turn to talk about their markets as well. These interviews were interspersed with various lively panels and workshops throughout the course of the two days which focused on bank finance, the sterling bond market, Latin American issuance, contingent capital, high yield bonds, covered bonds and investors’ own perceptions of the risks they face in the current financial environment.
It was only fitting that the conference came to a close on Wednesday afternoon with the same issues with which it started. “Will Greece default?” was the question put to the panellists. “Yes,” argued Charles Goodhart of the London School of Economics and Political Science. “It is just a question of whether it will be disorderly or orderly.” Charles Dumas, Chairman of Lombard Street Research was more critical in his observations of a failure to take decisive action that will lead Greece down a path of disorderly default. Patrick Minford of the Cardiff Business School even went as far as to say that the ECB has cooperated in pushing the Greek crisis down the road by buying up peripheral debt. His predictions of a future Northern European Eurozone with a few “hangers on”, was undisputed by the other panellists. The concluding debate on the US also sparked some rather impassioned opinions on the uncertainty of the future cost of labour and the inflexibility of the labour market itself.
Euromoney would like to thank all sponsors, speakers and delegates for helping to make The Global Borrowers and Investors Forum 2011 such a resounding success once again.
We are looking forward already to the 2012 Forum.