Eurozone financial crisis: Winners and losers

Hand holding euros
Image caption Not everybody has lost out in the eurozone crisis.

The crisis in the eurozone may threaten the livelihoods and living standards of many, but for some it presents a golden opportunity.

In cash-starved Greece, Yannis Perrotis, the managing director of leading commercial estate agent CBRE, says while local businesses are facing significant problems, large international companies with greater financial strength are able to seize opportunities.

"They are in a better position to benefit," Mr Perrotis says, "and in most cases, they take advantage of it."

Mr Perrotis has recently secured a prime retail location in central Athens for the sportswear giant Nike. Formerly occupied by a Greek bank, the rent Nike will have to pay is barely half what it used to be.

Top international clothing brands H&M and Mango have also secured prime premises for knock-down rentals, Mr Perrotis says.

The owners of the buildings were initially reluctant to accept so large a drop in rent, he says. "But now they have come to grips with reality."

Companies in financial distress present opportunities as well.

Restructuring specialist Haris Stamoulis, the chief executive of Athens-based LEADfinance, says Greece has many good companies which are saddled with bank debts they cannot pay.

Because Greek banks have been forced to write down such debts, Mr Stamoulis says, investors can gain control of companies through buying their debts from the banks.

'Trophy assets'

"If a company owes €100m (£87m) to a bank and they cannot service it," he says, "and banks have been forced to provide for those losses, if somebody comes and offer cash for the remaining, that would be music to their ears."

Mr Stamoulis has already attracted $150m (£94m) of American backing for such deals. Plenty more, he says, is poised to follow, if and when Europe's policymakers manage to stabilise Europe's financial system.

"There's going to be a lot of people like vulture funds circling around," Mr Stamoulis says. "Many people in the US and Europe have been interested in this."

Other investment opportunities are in the offing in the shape of Greece's vast array of state-owned assets - valued at up to €125bn (£109bn).

These include the Greek national lottery - among the biggest and most profitable in the world, and a disused airport built for the 2004 Athens Olympic Games.

In the currently depressed economic conditions, Greece has been reluctant to put such trophy assets onto the market.

But with the European Commission, the IMF and the European Central Bank - collectively known as the troika - putting Greece under increasing pressure to sell state assets to help reduce its debts, new bargains are likely to appear.

But perhaps the most surprising investment opportunity of all it is to be found in the chief cause of the present crisis: Greece's €350bn (£304bn) plus pile of unpayable debt.

Crippling debt burden

BBC Radio 4's File on 4 has discovered that some hedge funds are planning to cash in on the crisis by buying Greek debt in the form of Greek government bonds.

Their strategy depends on the troika persuading banks to agree to what is called a "haircut" in the value of their holdings of such bonds.

Athens and EU flag What went wrong in Greece?

What went wrong in Greece?

An old drachma note and a euro note
Greece's economic reforms, which led to it abandoning the drachma as its currency in favour of the euro in 2002, made it easier for the country to borrow money.

What went wrong in Greece?

The opening ceremony at the Athens Olympics
Greece went on a big, debt-funded spending spree, including paying for high-profile projects such as the 2004 Athens Olympics, which went well over its budget.

What went wrong in Greece?

A defunct restaurant for sale in central Athens
The country was hit by the downturn, which meant it had to spend more on benefits and received less in taxes. There were also doubts about the accuracy of its economic statistics.

What went wrong in Greece?

A man with a bag of coins walks past the headquarters of the Bank of Greece
Greece's economic problems meant lenders started charging higher interest rates to lend it money. Widespread tax evasion also hit the government's coffers.

What went wrong in Greece?

Workers in a rally led by the PAME union in Athens on 22 April 2010
There have been demonstrations against the government's austerity measures to deal with its debt, such as cuts to public sector pay and pensions, reduced benefits and increased taxes.

What went wrong in Greece?

Greece's problems have made investors nervous, which has made it more expensive for other European countries such as Portugal to borrow money.
Eurozone leaders are worried that if Greece were to default, and even leave the euro, it would cause a major financial crisis that could spread to much bigger economies such as Italy and Spain.

What went wrong in Greece?

Greek Prime Minister George Papandreou at an EU summit in Brussels on 26 March 2010
In 2010, the EU, IMF and ECB agreed a bailout worth 110bn euros (£92bn; $145bn) for Greece. Prime Minister George Papandreou quit the following year while negotiating its follow-up.

What went wrong in Greece?

Lucas Papademos
Lucas Papademos, who succeeded Mr Papandreou, has negotiated a second bailout of 130bn euros, plus a debt writedown of 107bn euros. The price: increased austerity and eurozone monitoring.

What went wrong in Greece?

In May 2012 elections a majority of voters backed parties opposed to austerity, but no group won an overall majority resulting in political deadlock. Fresh elections have been called in June.
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Only by reducing Greece's now crippling debt burden, the troika insists, can a continued crisis be avoided.

It is because this write-down would be voluntary on the part of bondholders that hedge funds have found an opportunity. Having bought the bonds, they can then refuse to agree to the voluntary haircut and demand payment in full when the bonds mature.

Christopher de Vrieze, who writes on sovereign debt for the specialist news service Debtwire, says some hedge funds are targeting short-term Greek bonds due to mature in March next year.

If the troika does persuade banks to agree to a voluntary write-down, Christopher de Vrieze says "Greece will be financed for another couple of years, and will be most likely to be able to pay its shorter-dated bonds."

As a result, hedge funds which refuse to agree to a write-down will demand payment in full, from funds provided to Greece under the troika rescue plan.

The deeper the voluntary haircut the troika pressures bondholders to accept, Mr de Vrieze says, the bigger the benefit to Greece, increasing its ability to meet demands from hedge funds for payment in full on their bonds.

'Free riding'

"It's a great deal for them," he says.

It is impossible to be sure how much Greek debt hedge funds have bought. There is no public register and most trades take place away from public exchanges.

But a source in the Greek government told File on 4 that after a voluntary write-down of Greek debt was first proposed in July this year, some €20bn (£17bn) worth of Greek government bonds were bought by non-bank entities.

That includes hedge funds.

Sony Kapoor, managing director of the think tank Re-Define, has been close to the protracted negotiations over the voluntary debt write-downs.

He says hedge funds stand to make anything from 60% to 100% profit while banks, under pressure from governments and regulators, face losses.

This so-called "free riding", Mr Kapoor says, seems unfair. "Those who participate," he says, "get a raw deal compared to those who decide on a free ride."

If large profits are made by free-riding hedge funds, Mr Kapoor believes, public protest is bound to follow.

"The contrast between Greek people on the street who are losing jobs on the one hand, and the massive amounts of profit being made by often foreign vulture and hedge fund investors would be clear for everybody to see," Mr Kapoor says.

"We are going to see much larger scale protest movements in Europe once this comes out."

'Vicious cycle'

Hedge funds would not be able to profit by free riding if haircuts on Greek debt were made compulsory. Then every Greek bondholder, including hedge funds, would be forced to write down the value of their bonds and suffer losses.

But according to Simon Tilford, chief economist of the London-based think tank the Centre for European Reform, the chances of hedge funds being hit in that way are slim.

Mr Tilford says European politicians and policymakers fear the consequences of compulsory write-downs. Because they believe investors would then assume that compulsory write-downs could be applied to other countries' bonds.

"They are worried that if they compel borrowers to take haircuts, there will be a dramatic sell-off of Italian and Spanish debt," Mr Tilford says. "That would ramp up borrowing costs for those countries and compound the difficulties they're in."

If Spain and Italy were to get into a vicious cycle like Greece, Mr Tilford warns, "the future of the euro would be very much in doubt".

At the European parliament, Sharon Bowles, the British MEP who chairs the Economic and Monetary Policy committee, agrees that it is not practical to try to prevent hedge funds profiting from free riding on Greek government bonds.

"Nobody likes the idea that hedge funds or anybody makes profits out of someone else's misery," Ms Bowles says. "But what's the solution?"

Since there is undoubtedly some risk in the free-riding trades, Ms Bowles says, "It's very difficult to draw the line in regulatory terms between risk taking and that which just seems to be rather unfair."

So, while most European citizens seem set to struggle with years of gloom and austerity, it seems likely that free-riding hedge funds are poised to be among the biggest short-term winners from the crisis.

File on 4 is on BBC Radio 4 on Tuesday 25 October at 20:00 BST and Sunday 30 October at 17:00 GMT. Listen again via the Radio 4 website or download the podcast.

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