Spain greater concern for market than Greece: Verstrate

Eurozone finance ministers failed to offer Greece the much needed financial aid to bail out the ailing economy from its debt woes. As concerns over the eurozone continue to mount, Bruno Verstrate, CEO of Nautilus Investments believes the deal did not materialise because the European finance minister want value for their money. Although, Greece has opted for austerity measures, the International Monetary Fund (IMF) and European Central Bank (ECB) want to see the savings.

Verstrate further added that the markets have already priced in Greece and would be focused more on Spain at the moment. 

Here is the edited transcript of the interview on CNBC-TV18.

Q: Where do we go from here? Is it only a matter of time that Greece is given the money or do you think that to that extent that the deal is getting postponed we are going to see some severe reverses in the market?

A: I think the European finance minister want value for their money and that is why it takes so long. It’s great that there is a lot of goodwill coming from Greece in making sure that they are saving and austerity is taking place. But I believe, in practice, not only in parliament, but in practice it doesn’t really bring much. That is what they want to see. It’s not just to see the votes but also see the money coming in from those savings and that’s mainly Germany asking for that proof to be seen before any money will come.

Q: But that proof will be known only after several months of spending and only after that revenues will be seen. Immediately do you expect Greece to get the 40 billion euro in the next week or two? There cannot be evidence of money within a week, isn't it?

A: I think it is needed. What is probably being done behind the curtains is that everyone is calculating what it would cause not to give it to them. The collateral damage to the local banks will be big enough not to take that risk. Eventually, they will give it. It is probably making sure that you get the best deal to wait until the last minute. But, I think they will have to give it.

Of course in the meantime not giving it to them will cause the financial markets to topple over towards Spain and Italy and that is the bigger risk. It’s not just a fact that they do not give the money to Greece. I think that risk can be well managed but it's the fact that the markets would react to it and then whichever way the financial condition in Spain and in Italy gets, is a much bigger risk still outstanding at the local banks.

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Q: The market seems to be in a positive frame of mind. The French downgrade was brushed aside this morning, we have negative news on Greece, the euro reacted very sharply, equity markets not that sharp, do you think the market is beginning to believe that all of this money eventually will have to come, no one wanting to take the risk of not giving the money. In that sense Europe is not a very big problem, at least in the near term or in the next one-two months? Do you think that feeling is still there in the market or is the market still worried that there could be significant risk if politicians do not come around to the same view?

A: I am afraid that the market at this stage believes Greece is a lost case anyway. I think everyone seems to be focusing more on Spain and that agenda will be much more important for the market than Greece. It might even be positive for the market if Greece leaves the eurozone. But, of course it would still come as a bit of a surprise because there would be write-offs at the local banks.

What markets are looking at is when is Spain going to ask for help and to see whether the mechanisms that are set up within the European Central Bank will be enough to be a real bazooka. That will be tested by the market and that is what markets are looking forward to. It will cause a lot of volatility on the way to exit and that is living in the minds of the investors.

But, it is going to be a rough path towards that because everyone knows that it is not sustainable to have such a debt level. They know that with all the efforts done, it is going to be extremely difficult to get back to a sustainable debt level and the other countries do realize that as well. They just do not want to be the ones pulling the plug.

Q: What are you now watching out for by way of events? When the money comes for Greece, what is the next step now in that series of events?

A: I think the most important thing to watch is when the bonds are expiring and to make sure that they can pay for that. I think that also is most relevant to the investors that hold that paper and also to the banks that still have some Greek exposure on their books. I think that will need to be matched, whether it’s by income that Greece generates or whether it is with money they get from the IMF and the European monetary union.

I think those are the two events that need to be watched and it will be an indicator of the timing. That will have a direct financial impact. Furthermore, the yields in Spain and Italy needs to be watched because that is going to predict a lot of the weakness in the euro and of course few economic numbers which seem to deteriorate also in the core of Europe.

More to come.