The house view on Greece von UBS

The house view on Greece
GDP 2011: EUR 215.1bn = 2.3% of Eurozone
Bonds outstanding: EUR 123bn (Bonds), 13.9bn (Bills)
Ratings: C (Moody's), CCC, stable (S&P), CCC (Fitch)

Debt sustainability

Greece is way beyond sustainable debt levels and requires further
significant haircuts on its debt. We expect another event of default later
in 2012 or early in 2013 as part of a series of restructuring events. To
achieve debt sustainability, a 70% haircut on Greece's current debt would
be required.

Bond recommendation

We had a Sell recommendation since March 2010 and extended this
recommendation also to the newly issued bonds from the March 2012
debt exchange. We expect a second default by end 2012 / early 2013.

Financial sector

The Greek banking sector is undercapitalized despite a recent EUR 25bn
transfer for bank recapitalization from the EFSF with funds from the
second bailout package. Greek banks lost a significant amount of
deposits as a result of the elevated risk of a euro exit, and would become
insolvent along with the government.

Economic outlook

We continue to expect a recession for 2012, the fifth year running. The
outlook is highly policy-dependent and uncertain, given the back-andforth
between Greece and the Eurozone. The delay in the implementation
of the conditions of the second bailout plan will likely lead to a back
loaded austerity profile, and poses considerable downside risk to the
2013 UBS real GDP forecast of +0.7%. The outlook depends also on the
forthcoming negotiations between the Troika and Greece on its
adjustment targets.

Next steps

We expect an ND+PASOK coalition to agree on a slightly modified
memorandum with the Troika to open up the second bailout plan.
However, Greece is unlikely to meet the plan requirements, and exit risk is
likely to return later this year or early next year, since the Troika will
request more reform measures from Greece; these will be difficult for the
Greek government to accept in light of likely public unrest.