Some pressure may ease if Europe stabilises: JPMorgan Chase

Most equity markets have reacted positively to Friday's EU summit outcome. Some sceptics believe that the power of 200 billion euro might not be enough from European Central Bank (ECB) because of the problem in Italy and Spain.

James Glassman, Senior Economist at JPMorgan Chase Bank feels the solution has been found for the short-term, but the euro zone has a long way to go for the investors to be certain and confident.
"The important message from the agreement is that the euro area members are willing to defer to a higher European authority and adopt a mechanism that poises more fiscal discipline," he added.
He further stated that if the European economy stabilises and recovers slowly, then some of this pressure might disappear. Here is the edited transcript of his interview to CNBC-TV18. Also watch the accompanying video. Q: What is your assessment of the outcome from the EU treaty? Will risky assets like equities see a big relief rally because of this?
A: Yes, that makes sense. We have had many of these summits. The important message from the agreement is that euro area members are willing to defer to a higher European authority and adopt a mechanism that poises more fiscal discipline. It shows a desire to find a way through this.
The scene in the market was that this crisis of confidence was going to undermine the whole European Union. I think these fears are probing unfounded. This time the market might react like this, but I suspect this is probably the final answer. Q: After the signing of this EU treaty, the first big test now would come in the form of the Italian and Spanish bond auctions that were to take place this week. Last week, the Italian yields had come under pressure inching very close once again to the 7% mark. How do you see this shaping up?
A: I am not sure whether it will bring tremendous relief yet because there are a lot of details unknown about how this will work. This is the reason why many of us thought that the European Central Bank might be stepping in to buy some of the sovereign debt to alleviate a little of the problem because there is a liquidity crises. But, the European Central Bank seems unwilling to move in that direction, although what they are offering and liquidity side is quite aggressive. This was much more than the market imagined. The crises would not get intensified and it would probably take a little more time. The part of the problem here is that the crises is foreseeing many of these members to tighten their fiscal belt, which is making it more difficult for the economies that having been raising doubts about the yield spreads. If the European economy stabilises and recovers slowly, then may be some of this pressure would disappear.