Peripheral European countries in deep recession: Jim Walker

Though world leaders in the Group of Eight (G8) Summit pledged to keep the world economy intact, experts feel that it is likely to be of “little” help. With no consensus from Europe, experts warn that markets will be on tenterhooks on a possible Greek exit from EU.

According to Jim Walker, Founder and MD, Asianomics Greece's exit of the EU will open doors for the others to exit. In an interview to CNBC-TV18, he said that peripheral European countries are in a deep recession and is not even seeing any immediate resolution of the Greek and Spanish crisis. Here is an edited transcript of his comments. Also watch the accompanying video. Q: How are you reading the global situation? Do you think the news flow from Europe will worsen over the next few weeks through the June elections in Greece or you think it might actually have bottomed out?
A: I don’t think it has bottomed out by any means. The problem really is that we are actually just getting to the crux of the matter that they might have known that these countries are in deep recession.
Greece doesn't matter although most people have some argument with that. But what really matter is that Spain is going to be next. If Greece exits, then of course it will open the door for further exits and for countries that really can't meet their liabilities just move. Spain is really on top of that.
Spain's corporate debt to GDP ratio is 200%, their debt to GDP ratio is 91%. This is where the real problem lies and as the economy slows down, we go into recession. Then the corporate private sector of the problem lies and now we have the increased concern of whether or not the banking system is going to lose money through deposits that have been forced loan repatriation.
So, I don’t think the news flow is going to get any better, it is going to get worse over the course of the next few months. Q: There has been a lot of talk though about how the Fed or the European Central Bank (ECB) may have been pushed into announcing more Quantitative Easing (QE) or liquidity measures. There were some comments about focusing on growth in China which has raised chatter about easing there as well. Would you say that looks like a possibility given the situation?
A: The problem is that we have now entered fifth year of central bank action in pumping liquidity into the system and waiting for them to announce the next set of extraordinary measures whether it's QE3, QE4, QE5, LTRO 3 and what not. We are getting close to that point where the markets are going to start realising on the announcement of these programmes that they should be selling assets because they are not working.
So the next announcement will be interesting and we may get a small bouncein the market this time. But thereafter the game is up for ECB because we are no further forward then where we were four years ago to solving European problems but actually solving global problems for that matter.
As far as the above statements made by the commentator are concerned talk, he made a two sentence statement saying that they were going to refocus on growth, mostly fiscal policy while keeping an appropriately tight monetary policy. Well, China has no mechanism to increase fiscal policy spending without loosening monetary spending. This is what many commentators don’t seem to understand, the mechanism that China uses to increase fiscal spending is to allow the banks to lend more and government they have made such a bad job of lending over the course of the last three years. 
I don’t think that’s going to happen anytime soon. Some of the problems in the banking system emanating from wealth management products which can probably be best described as being the equiavalent of the US sub –prime and that’s now starting to help the Chinese system and deposits in the banking system. There will be a falling though and I think there is a prospect of China loosening policy dramatically over the course of the next few months.