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One euro-zone country to default within decade – CBP director

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  • One euro-zone country to default within decade – CBP director

NETHERLANDS - The financial situation in the euro-zone is causing major uncertainty, with the financial markets setting the odds of an indebted country defaulting within 10 years at 90%, warned Casper van Ewijk, deputy director of the Dutch Bureau for Economic Policy Analysis (CBP).

Speaking at the ALM conference in Amsterdam, Van Ewijk put the large premiums on some European government bonds into perspective by highlighting the risk of a struggling euro country failing to pay back its debt.

"This risk often seems to be insufficiently appreciated," he said.

Van Ewijk also warned that the equity markets seemed to be recovering from the crisis more slowly than initially expected.

He said the shortfalls at Dutch pension funds were serious and structural, and that an elaborated Pension Agreement between employers and employees was therefore urgent.

Van Ewijk advised Dutch pension funds to remain alert of new risks, such as ones caused by falling contributions as the population ages, as well as offsetting these losses through higher-risk investments.

The CPB director added that an automatic increase of the long-term interest rates - the criterion for discounting pension funds' liabilities - to the high level of the 1980s was unlikely.

"Moreover, the applied yield curve is already containing the expected rates rise," he reminded his audience.

Van Ewijk mainly attributed Dutch pension funds' susceptibility to interest developments to their low coverage ratios, which were expected to have fallen from 108% at the end of December to around 105% following the recent earthquake in Japan.

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