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Jul 12, 2012, 08.23 AM IST
Patrick Legland, global head of research, Societe Generale, explains to CNBC-TV18 that the euro was massively overvalued and any further downside to the currency would be positive for the economy.
In an analysis of the European markets on CNBC-TV18, Patrick Legland, global head of research, Societe Generale, explains that the euro was massively overvalued and any further downside to the currency would be positive for the EU economy.
Legland adds that the surge in bold yields was the markets' reaction to the inability of the lacklustre rate of growth in controlling the increase in debt.
Below is an edited transcript of the analysis on the CNBC-TV18. Also watch the accompanying video.
Q: What would you now watch out for with the bond yields going above the 7%-mark? Are market watchers looking at the ECB and expecting some bond purchases?
A: There are obviously many question marks hanging around. Certainly the biggest concern comes from growth within Europe and the eurozone. It is very clear that while on one side most governments are ready to substantially reduce deficit, which is good, on the other side, debt continues to rise and this really worries the market.
The market is taking into consideration that there is not going to be enough growth to reduce debt into next few years and that is why yields continue to go up in most European countries.
Q: The euro fell to its lowest this year at 1.226, despite no significant negative trigger. Do you think this is profit-taking extending beyond a certain limit or do you think there is a genuine concern in the market about funding at this point? What do you think has led to this sharp reaction in both the bond and currency markets?
A: I think some real concern about the eurozone has started and obviously this has impacted the euro. I would be tempted to say that it is a very valuable tenure for the European economy. Obviously, the euro is massively overvalued and if we continue to see further downside on the euro, it would be positive for the European economy.
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