LTRO-II stresses euro, but overall good for economy: Expert

LTRO-II came in above expectations at 530 billion euro today. Bruno Verstrate, CEO of Lakefield Partners spoke to CNBC-TV18 about his take on the matter. Check out his comments.

Below is the edited transcript of the interview. Also watch the accompanying video. Q: The LTRO-II perhaps gives a short-term boost. But does it change anything in the medium to the long term?
A: It is above expectations. What is also above expectations that perhaps could have more of an economic impact is the number of banks that participated in this LTRO. The chances are that a lot of smaller banks participated in it as well, who might have seen this more as an opportunity to bring money back into the economy. That did not exactly happen in the first tranche; neither did it happen on the long-end of the peripheral bonds. So I think this time there might be more of a chance that we see moves on the three-year Italian yields for example, and hopefully, even to see more money coming into the real economy. I think that is what market is hoping for. Since it is a little bit more, the euro is coming little bit under pressure which should be simulative for the European economy as well. Q: We have seen the banking stocks react very positively to this news, what does this mean for the banks?
A: It means that they basically get free money and they can still charge the clients for it. The margins of the banks are clearly improving by this, albeit only for three years. But it gives them necessary breathing space in order to higher their commissions a little bit and to improve their profit margins. One should not forget that after the Greek write down there will be a lot of write offs in the banks balance sheets. In order to compensate that and that would be only minor compensation, this LTRO is definitely helpful. Q: You were saying earlier that you didn't see this money really coming into the real economy with the first tranche, with the second one you are saying it is, so you are expecting things to improve?
A: The deleveraging that has been going on from the banks could be stopped by it and the fact that the demand for sovereign bonds might pick up a bit. If you pay around 1% over a period of three years and get a multiple of that by investing in Italian, Portuguese, Spanish bonds, that is almost a no brainer, especially if the risk is fading away a little bit on the economy as well. So, that could definitely help the crisis to be detained. Eventually, the only thing that it will improve in the economy is when this seeps through to the end consumer. For example, he can borrow at cheaper rates and that he can borrow in the first place. Q: Euro is under pressure at the moment, but going forward how do you think the Euro is going to pan out against the dollar?
A: That