Several European Countries At Mercy Of Markets
The fate of several European economies may rest on investors who are deciding whether it's too risky to continue lending them money.
ROBERT SIEGEL, host:
The fates of several European economies will eventually depend not on politicians but on financial markets. The big question now facing Greece, among other countries, is this: Will the markets be willing to lend money at rates that those countries can afford? The Greek restructuring plan is as much an effort to keep investors happy as it is to keep Greece afloat.
Zoe Chace of NPR's Planet Money spent time yesterday with just such an investor, an adviser at PIMCO, one of the world's biggest bond outfits.
ZOE CHACE: Rich Clarida went to bed Wednesday night at 11:00. Overnight, while he slept, European leaders were meeting in Brussels to work out a second bailout package for Greece. Clarida got up at 5:30.
Mr. RICH CLARIDA (Global Strategic Adviser, PIMCO): This morning was a three-latte morning.
CHACE: As he makes his latte, he's reading the latest news out of Europe.
Mr. CLARIDA: You know, I will say that had this been four years ago, it would have been a big night, but there had been some many of these in the last four years.
CHACE: Clarida gets on the commuter train from Connecticut to midtown and keeps looking for fresh information out of Europe about the bailout package. It's up to the bond traders to decide if they still want to lend money to these countries and under what terms.
Mr. CLARIDA: I got this at 9:45 this morning, so this is the leaked version of the communique.
CHACE: Clarida looks exactly like what I expected a bond guy to look like -light buttoned-down shirt, nice watch, perfect tan, not a drop of sweat, ballpoint pen in his pocket.
At his desk in front of him is an email version of the package, annotated and highlighted with his own little code.
Mr. CLARIDA: The most important thing from my perspective was in the communique the statement that this European financial stability fund will have the capability to intervene in the market for European bonds.
CHACE: And I see that you've not only circled it, but you checked it and put an arrow.
Mr. CLARIDA: Yeah.
CHACE: The big meeting where the PIMCO guys discuss how this affects their investments happens at 1 o'clock. There, Clarida will sometimes sit alone at the most enormous table I've ever seen, across from a screen with other PIMCO portfolio managers in Newport Beach, California. It's at these tables where, to some extent, fates of countries are determined.
At meetings like these months ago, PIMCO decided they were all but done with Greece, Ireland and Portugal. Even though right now, a five-year loan to Greece gives you about a 20 percent interest rate that's moving around a lot, that's an amazing return on an investment, but it's risky. The bonds are pretty much worthless if Greece can't pay you back, but Greece is pretty much insolvent if no one will buy their bonds.
Mr. CLARIDA: Whenever you see very high interest rates like that and they're not being offered by loan sharks, that means investors are really worried they're not going to get paid back. So 20 percent is essentially a measure of the risk that the country defaults.
CHACE: This latest package doesn't change Clarida's thinking on Greece. He doesn't just look at the financial agreements. He also looks at the country's internal politics.
Mr. CLARIDA: Obviously, in a country which says it needs to pursue a very austere fiscal policy, when you see people rioting in the streets, that, you know, increases the odds that it may not be implemented. So you have to factor that.
CHACE: PIMCO still owns Spanish and Italian bonds, two countries with large outstanding debts. This is why yesterday's bailout package matters to Clarida. Though explicitly it was directed to Greece, its implicit message was to investors.
The message received was Europe takes care of its own. Feel free to lend to us. We won't let you down.
And all over the world, investors sat down at huge conference tables and said yes to the eurozone - for now.
Zoe Chace, NPR News, New York.
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