Greece Default Drive Risks Reviving Contagion as Bonds Plunge

April 19 (Bloomberg) -- European investors and politicians prodding Greece to restructure its debt may end up wishing they hadn’t.

Talk of restructuring spurred by Germany risks re-igniting Europe’s debt crisis, enveloping Spain just weeks after European leaders said bailouts of Greece, Ireland and Portugal ended contagion. Under a Greek default, Europe’s financial system would strain as banks in and outside Greece and holders of Greek bonds, such as the European Central Bank and domestic pension funds, tally losses.

“By restructuring Greek debt you also may precipitate a crisis in Spain,” David Watts, a strategist at CreditSights Inc. in London, said in a telephone interview. “At that point it doesn’t matter how much you’ve saved by restructuring Greece, the fallout from Spain is much greater. The issue comes back to not knowing the ultimate cost.”

http://www.businessweek.com/news/2011-04-18/greece-default-drive-risks-reviving-contagion-as-bonds-plunge.html