Soros Says Greek ‘Death Spiral’ Risk Remains After Aid Package

April 13 (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 today 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 today 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.”

Greek two-year government note yields were near the lowest in a week after today’s bond auction. The yield on the securities had dropped as much as 45 basis points. It closed at 6.03 percent.

“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 today that “I’m no longer running the fund.”

To contact the reporter on this story: Gabi Thesing in London at gthesing@bloomberg.net

Last Updated: April 13, 2010 15:40 EDT

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