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Jun 26, 2012, 10.51 PM IST
Darren Sinden of Silverwind Securities explains to CNBC-TV18 that the only solution lies with the politicians who have to face the reality and take bold, yet unpopular, decisions.
Any delay, says Sinden, will cause the bailout bill of 5 trillion euros to triple or quadruple and make any move towards recovery that much harder.
Below is an edited transcript of the interview. Also watch the accompanying video.
Q: Do you share the view that expectation of the EU Summit turning into a damp squib has caused a sharp correction in the market?
A: I think the market hopes the EU Summit will go against the history and actually announce some policy action. But it's going to be very difficult. There are over 17 different groups of politicians, each with their own agenda and the only way really to perhaps try and help the slide in the US is to create some kind of mutual federalism.
So we live in hope of a resolution, but I think the reality is that it highly unlikely for anything to materialise. And even if a conclusion is reached, it will be more of a sweeping statement rather than a firm policy decision with key goals and commitments.
Q: Is the bit of green on the European markets due to mild technical correction after a steep fall, the hope of bond-buying or something else positive?
A: It is a dead cat bounce to some extent. The data from Germany was better. The consumer sentiment data was better than expected but it is tempered by looking at Italian retail sales, which were terrible. It's a bit like what George Bernard Shaw said about people who get married twice try and put hope over experience. I am afraid that's what we are seeing this morning in the European markets.
Q: What is the expectation? Is there nothing concrete because we have already had statements from Merkel saying that the Euro bond is not possible. The EFSF and ESM are not unlikely to be diluted. So what can we expect in terms of concrete action from the European summit?
A: I don't know if there is any. To give you an example of how complicated the situation has become is one could observe Moody's downgrade of the Spanish banks. The Spanish banks were downgraded because of their exposure to the Spanish sovereign. Of course Spanish banks have got a lot of Spanish bond holdings.
Now Spain has asked for extra money to recapitalise its banks and that has made the Spanish economy and the debt position worse which in turn weakened the banks.
There are so many such situations within the euro zone that it's very hard to find a way out. But somebody needs to step forward, probably Angela Merkel, at the end of the day take the situation by the scuff of the neck and say that this is the only way we can move forward otherwise the whole thing is going to fall apart.
But she wouldn't want to do that because she doesn't want to present the German tax payer with an enormous bill. Germany needs to take a decision on maintaining the EU and of it is prepared to spend on it.
If Germany takes the lead, others will fall in line, but it's politically unpopular. Politicians usually don't do things that are not going to win them votes.
Q: It will be very difficult for Angela Merkel to sell the 'shed debt idea' to her tax payers. What is the next best, even band-aid solution, that you expecting from the summit?
A: I am not sure there is even a band-aid solution. But what is needed now is clear and bold thinking. It would be problematic to implement and would be unpopular. But maybe radical thinking is the way ahead.
The bill ultimately will probably come to more than the estimate of 5 trillion euros, if we don't take a radical solution now.
The European politicians need to face upto the reality of the situation as monetary policy has reached its limits. Now it's the turn of the politicians to try and come out with a viable solution, however hard that may be. But prevaricating just makes the situation harder still.
Tags: Darren Sinden, Silverwind Securities, EU Summit, Moody's, Spanish banks, Angela Merke, politicians
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