Paulson & Co., the $23 billion hedge fund whose founder John Paulson is seeking to recover from record losses last year, said Greece may default by the end of March, triggering the breakup of the euro.
Greece may need an unprecedented 90 billion euros ($117 billion) to meet funding requirements under the anticipated agreement on private sector involvement, the recapitalization of the banks and other funding needs, Paulson estimated in a year- end letter sent to clients this month.
“We believe a Greek payment default could be a greater shock to the system than Lehman’s failure, immediately causing global economies to contract and markets to decline,” the hedge fund said in the letter, a copy of which was obtained by Bloomberg News. The euro is “structurally flawed and will likely eventually unravel,” it said.
Two years after pledging to pull Greece back from the brink, European leaders are torn between pouring more aid into the country or risking an unprecedented national bankruptcy that might force the nation out of the euro and spur renewed market turmoil.
“It seems likely that the pressure to keep the euro together becomes too great and it ultimately falls apart,” Paulson said in the 100-page letter. The firm said its biggest concern are European banks, which have borrowed more than their U.S. counterparts and don’t have enough equity to withstand a credit crisis.
‘Biggest Disappointment’
Paulson, who became a billionaire in 2007 by betting against the U.S. subprime mortgage market, lost 51 percent in one of his largest funds last year as his wagers on a U.S. economic recovery went awry. He sold his entire stakes in Citigroup Inc. and Bank of America Corp. last quarter before the shares rallied this year.
