Greece may default by 2013

NEW YORK: Greece is likely to default over the next three years because budget-cuts won’t be enough to reduce the nation’s debt burden, Pacific Investment Management chief executive officer Mohamed A El-Erian said.

It’s in Greece’s interest to default “as long as you can contain the contagion to other countries and it is done through orderly restructuring and repricing to retain competitiveness,” Mr El-Erian said at a conference sponsored by The Economist in New York on Monday. Like Latin America’s “lost decade” in the 1980s, “the alternative doesn’t promise growth and employment generation,” he said.

The extra yield, or spread, investors demand to hold Greek debt instead of similar-maturity German bonds, jumped to a two-week high on Tuesday. The European Union and International Monetary Fund approved an e110-billion ($153 billion) aid package on May 2 in exchange for Greece agreeing to cut public-sector wages and pensions and raise taxes on fuel, alcohol and cigarettes.