Europe can't keep printing money, buy own toxic stock: BGC

Concerns over Spain’s rising borrowing figures are leaving global investors exceedingly jittery. Spanish banks average net borrowing has jumped almost 50% to around 227 billion euro in March.

David Buick, partner, BGC tells CNBC-TV18 that the collapse in European markets is due to a whole of reasons, ranging from the release of data points from the eurozone, US and China.

“But what really made Europe sit up was this staggering sum of money of 220 odd billion euro borrowed by the Spanish banks to buy their own bonds,” says Buick.

He worries that a debt-laden country like Spain will find it tough to grow their economy in the next two to three years.

We cannot in Europe keep printing money and allowing the banks to buy their own toxic stock and expect eventually to get out of jail. On the printing of money, Buick says, “This kind of policy cannot go on for an indefinite period of time because there comes a time when you are going to have to return to a proper interest rate structure otherwise we are going to get inflation returning to the agenda very quickly.”

Below is an edited transcript. Watch the accompanying video for more.

Q: There has been a sudden collapse in some of the European markets. What have you gathered as a reason for this weakness that we are seeing currently?

A: It’s really a compendium of reasons. Some of the data throughout the whole weak has been very mixed. The week started off badly with concerns over European sovereign debt problems. Then they sort of got pressed away with one or two reasonable results and the outlook in the United States looking not too bad and the news on China’s GDP going down to 8.1%, people accepted that because that was a good outlook as regards to retail and industrial production. So it gives the Chinese authorities a chance to relinquish some of the reserve requirements from the bank.

Then I think India looked a little bit in trouble this morning with Infosys not really being that positive an outlook for the next few months which of course counteracted the news that we have had from Google to some respect. But what really made Europe sit up was this staggering sum of money of 220 odd billion euro borrowed by the Spanish banks to buy their own bonds which in my personal opinion is okay as a one card trick, but its insanity to carry on in this way. We cannot in Europe keep printing money and allowing the banks to buy their own toxic stock and expect eventually to get out of jail.

I think there is a reality in the market place that this kind of policy cannot go on for an indefinite period of time because there comes a time when you are going to have to return to a proper interest rate structure otherwise we are going to get inflation returning to the agenda very quickly.

The markets cannot take any kind of interest rate hikes at the moment. But this printing of money just indefinitely is a very worrying concern particularly with a country like Spain where it’s impossible to see how they can possibly grow their economy in the next two or three years. It’s not broad based enough.

Q: What's the outlook on the markets now? How are investors approaching this? Are they taking money off the table?

A: A little bit. We had a very good day in Europe yesterday, we made gains somewhere between 1% and 1.3% so to give back 0.5% today to profit takers doesn't really surprise me at all. I am not as negative about the outlook for the US economy. Next week we have got a huge number of companies reporting results.

Today we have got JPMorgan and Wells Fargo who are due to announce their results. I will be personally very surprised indeed if they are not pretty good. Then of course next week we have got the likes of Citi Group, Goldman Sachs, Intel, Coca-Cola, Yahoo, Ebay, Bank of America, Microsoft and they all should be good.