Feb 10, 2010, 05.14 PM | Source: CNBC-TV18
In an exclusive interview with CNBC-TV18, Jay Bryson of Wachovia Bank spoke about his views post the worries about debt problems in Greece, Portugal, and Spain rattled the global financial markets.
Below is a verbatim transcript.
Q: Can you give us your views on the Greece, Spain and Portugal issue and are they big enough to rock global markets for a significant period of time?
A: When you look at Greece by it self, itís relatively small economy, itís only 3% of the total Eurozone, Portugal is even smalleróabout 2%, the big guy is Spain that is about 10% of the total Eurozone. If you extrapolate this you could say if Greece has problems and Portugal has problems and Spain has problems what about United Kingdom, what about the United Statesóall these countries also have some sovereign debt issues as well and so if you take an extreme view here. The problems that are playing out right now in Greece this could have bigger ramifications for some more important markets.
Q: Fiscal deficits seem to be the big story impacting global markets. How much a real factor are they in what happens to global markets in 2010?
A: When we look at the situation, for Greece, they certainly have quite a hard road ahead of them. They have a deficit to gross domestic product (GDP) of about 12% right now; their government debt is well over 100% and so in order to stabilise their government debt, they really need to generate growth but that is the issue. They are looking at a major fiscal contraction there and as they raise taxes as they cut government spending that slows growth there that will certainly be an issue.
I guess the silver lining here is that some major players in the world seem to be willing to assist. Today the US stock market rallied on the news that there maybe a deal in the works with European Union and also the IMF have the financial resources available to make some sort of lending package available to Greece as well. So just the acknowledgment that there are some big players out there that could come to Greeceís aid, could help stabilise situation not only in Greece but in Portugal and some of the other countries as well.
Q: So rapid bailout plan will come, you think the markets are right in expecting that?
A: I really think at the end of the day something will be done. The talks with the EU are still in progress at this point but our belief would be that somebody is going to come to the rescue here because some of the big players like Germany, France, they donít have an interest in Greece blowing up or Portugal blowing up and having another financial contagion affect the entire region.
At the end of the day the critical powers that are will come to some sort of agreement to bring some sort of aid package to make this transition process for not only Greece but for Portugal and Spain as well to smooth out that adjustment process.
Q: Are any more skeletons in the closet that may erupt over the course of the year?
A: The big ones would be if growth were to slow significantly across the globe then you are looking at some countries, United Kingdom potentially the United States (US) which has some big deficit issues right now and if growth were to remain very weak in the US over the next few years. If US were to become another Japan, then you could see a significant sort of issue there.
Keep in mind that when Japanís bubbles blew up in the late 1980ís, early 1990ís their sovereign debt to GDP was in the order of 60% which most people thought was well sustainable. Two decades on Japan is looking at an sovereign debt to GDP ratio of close to 200%. When argued that US was much more upfront about facing some of its fiscal issues, recapitalize banks much quicker than Japan ever did but if growth for whatever reasons is very weak, you could be looking at an unsustainable debt situation develop somewhere down the line in the United Kingdom and perhaps also in the US.
Q: What is your outlook on the dollar and the euro?
A: If they crisis were to continue, if the EU in fact doesnít do anything or the IMF doesnít do anything, I think that is actually dollar positive, we have seen that over the last few weeks where the dollar has rallied. If you think there was even a slightest chance of European Monetary Union having some sort of issues, you donít want to be really holding euros in that sort of case, so we have seen the dollar rally and I think that will be good for the dollar. It is also probably even better for the yen, when people become really risk averse; they tend to move into the yen. So the Japanese yen over the last two weeks have strengthened versus almost everything.