Soros Says Risk of Greek ‘Death Spiral’ Remains (Update1)

By Gabi Thesing
April 14 (Bloomberg) -- Greece still faces the danger of a "death spiral" because the cost of borrowing in the euro region’s rescue package is too expensive, billionaire investor George Soros said.
"While it’s better than what the market is currently willing to offer, it’s still rather high," Soros said at an event in London late yesterday organized by the Economist magazine. "It is a question of solvency. If you start charging very high rates as the market does in anticipation of solvency then that pushes you into insolvency."
Euro region finance ministers on April 11 offered Greece a 30 billion-euro ($41 billion) aid package which would give it three-year loans at 5 percent if it can’t raise money in capital markets. Greece auctioned Treasury bills yesterday for the first time since the rescue bid, drawing more demand than at a previous sale.
"Concessional rates" of borrowing aid would help Greece "fulfill their target," Soros said. "If they don’t, they have then to tighten even further, then your tax receipts go down and the economy goes further into tanking and then you go into a death spiral. That is the danger that is still remaining."

Bonds Fall

Greek bonds fell for a second day today, pushing the yield on the country’s 10-year debt up 17 basis points to 6.98 percent. The yield rose to as high as 7.51 percent last week before European leaders announced details of their aid package.
The extra yield investors demand to hold the country’s 10- year bonds instead of German bunds, the region’s benchmark government securities, climbed 17 basis points to 383 basis points. It averaged about 65 basis points in the five years through November, before concern deepened that the nation’s deficit would soar.
"The argument for political will to bail out Greece" was that "the consequences of Greece leaving the euro would be the disintegration of the euro," Soros said. "The disintegration of the euro would take a very long way toward the disintegration of the European Union.
Soros Fund Management LLC manages about $25 billion. Soros said yesterday that "I’m no longer running the fund."