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Jun 04, 2012, 04.08 PM IST
Bruno Verstrate, CEO, Lakefield Partners explains to CNBC-TV18 that the main event to watch out during the week is the meeting of the ECB which will indicate the ECB’s opinion on quantitative easing or the next LTRO.
In an analysis of the European markets, Bruno Verstrate, CEO, Lakefield Partners explains to CNBC-TV18 that the main event to watch out during the week is the meeting of the ECB which will indicate the ECB's opinion on quantitative easing or the next LTRO. The release of macro-economic data indicating the state of global economy is also eagerly looked forward to.
Below is the edited transcript of the interview on CNBC-TV18. Also watch the accompanying video.
Q: The data from Germany, the Eurozone PMIs and the US was dismal. Do you think that's the primary reason for the DAX to underperform today?
A: Germany is under tremendous pressure after having lost France as an ally and the euro-dollar rate. The proportion of each nation's share in the ECB makes it clear that Germany alone will not be able to determine the agenda of political Europe.
Investors are yet to believe that Germany will have to give in or live with higher yields and a higher currency. I think that's the choice Germany has at this point of time.
Q: What do you make of the rhetoric of a fiscal union? Do you think something like that is possible in the near-term?
A: Not in the near-term. I think the talks will be near-term, but the action will certainly be implemented in the longer term. One piece of good new is that Spain is already beginning to realise that a compromise is necessary.
On the other hand, France will have to give in to give up a bit of their sovereignty and to enter a real fiscal union. The only snag is that there are two things that determine the discussions - the markets and the democratic mode of functioning of the union. That's something that politicians should be aware of before irreparable damage is done.
Q: Where do you see the euro-dollar? Is there more pressure on the euro or will discussion on quantitative easing from the US Fed begin to put more pressure on the dollar?
A: The Fed is waiting to make an announcement based on the euro-dollar rate. There are many factors acting on the euro to keep it strong.
But because of the flow of capital from outside the banks into other countries, it's very hard to predict where the euro is going. The Greek elections are beginning to add pressure to the euro, but I don't believe that it will break through substantial levels until of course one of the two central banks starts printing money. It's like competitive devaluation at this stage.
Q: What are the events that you will watch out for during the week?
A: The chief event to watch out for is of course, the meeting of the ECB as Draghi is much more outspoken and less diplomatic.
The conclusion of this meeting will indicate the ECB's opinion on quantitative easing or the next LTRO. The release of macro-economic data indicating the state of global economy is also eagerly awaited.
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