In an interview with CNBC-TV18's Ekta Batra and Anuj Singhal, Banque International's Hans Goetti said he expects Greece to strike up a last-moment 'can-kicking' deal.
He, however, warned that in case of a Greece default and exit from the Europe, the unintended consequences on the global financial system would be difficult to tell.
Below is the transcript of the interview on CNBC-TV18.
Ekta: There is a lot of headlines floating around for Greece. There is the emergency Head of State summit meet which is taking place today plus there is a talk of maybe capital control and maybe even banks being closed today in Greece. Put things into perspective for us. What is the news on Greece and what is the likelihood of them stitching a deal?
A: The likelihood of them coming together with some kind of deal seems still there. But, there is also the other extreme where you have a complete train wreck; that is also a possibility.
We still lean more towards a deal being struck last minute which basically kicks the can further down the road. It cannot be the ultimate solution because that would involve a much more comprehensive solution or whatever, that is not on the table. But Greece has made some new proposals and maybe they come together on that this time around, to get the stations that you need at the end of the month.
Anuj: Two part question then, in that case, do you think emerging markets have a bit of a free run from now up until August, September when we will again start talking about a possible Fed rate hike? And second part, within emerging markets last week or ten days, we have seen quite a bit of outperformance of India compared to China. Would you expect that to continue?
A: You are absolutely right by highlighting the Fed [has to think] globally. Traditionally, the Fed has looked at the US economy more as from a standalone basis in taking policy decisions.
But this time around, they have to look at the global environment, we have the situation in Europe with Greece, we have the slowdown in China, we have growth deceleration in emerging markets and this is something which may keep the Fed from hiking rates in September, maybe the rate hike will be postponed in 2016.
Again, this is not our base case scenario, but that is something the markets are starting to see and that of course benefits emerging markets because it would put some downward pressure on the US dollar. And that of course is positive for emerging markets given the fact that there is a lot of borrowing that has been done in US dollars, so a lower dollar would definitely help.
Ekta: According to you, if in case there is no deal which can be constructively created for Greece, what would then be the impact on the European markets, especially maybe Germany?
A: The European markets of course would bear the brunt. Let us say if Greece defaults in the worst case, leaves the Eurozone, then of course you will have unintended consequences. The argument has been made that the risk of contagion this time around is less than it was four years ago which is somewhat illustrated by the relatively narrow yield spreads between peripheral Europe and core Europe -- it is quite different from what it was four years ago.
But then again ,you had the same arguments in United States when the sub-prime crisis came up, the initial reaction there was that yes, it is contained, it is only 6 percent of total housing loans and we know what happened. We had the financial crisis after this.
My point is there is a lot of things that we do not know that unknown or known and unintended consequences which makes this situation rather dangerous in a way for financial markets.
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