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The consequence for Europe if the euro fails

Mark Thomas
BBC News Channel
19 May 2010

Broadcast interview

PA’s strategy and marketing expert Mark Thomas has been interviewed on the BBC News Channel.  Mark gives his views on the repercussions of the move by Germany to ban some types of financial short-selling, after the German regulator banned traders in the country from "naked" short-selling of euro-denominated government bonds and of shares in the country's 10 most important financial institutions.

Mark says that in principle this move may make some sense, as the German government may be afraid of short sellers dragging down the price of stocks below a fair market level.  Mark says: "What I think they are afraid of is this idea of short-sellers acting almost like a wolf-pack and dragging down the price of certain stocks." Mark goes on to point out that the problem with this is that short selling also has a positive impact if it is revealing the truth about the state of the German banks. 

Mark points out that this move could be viewed as drastic measure and that German voters will have to be persuaded that this is the right decision. He goes on to comment that some of the banks with the biggest exposure in the European Union's servicing of Greek debt are German and French banks.

Mark concludes that there is a real risk for the euro and that while the bail out plan will buy some time, it does not solve the fundamental problem that Greece is not able to service the debt it has. 


BBC Interview
BBC News Channel
19 May 2010

Transcript
Mark Thomas (MT), interview with Tim Willcox (TW)

20:21

TW: This seems to be sparked not only by these comments about the greatest threat, but also this ban on naked short-selling.  What was the thinking behind that?  Did this make sense from an economist's point of view?

MT: Well in principle, it may make some sense, in that what I think they are afraid of is this idea of short-sellers acting almost like a wolf-pack and dragging down the price of certain stocks. In particular, German bank stocks below a fair market level. The problem is that of course, short-selling also has a positive impact if it is in fact revealing the truth about the German banks.

TW: That is what investors and people felt today was it? That she [Angela Merkel] was actually alluding to some threat out there which made the situation even more powerless than they originally thought?

MT: I think it made people wonder whether the risks were even greater than they had even previously realised, because this measure had a slight air of desperation about it.

TW: But of course there is the political dimension that counter-balances this. She has got to persuade all the voters in Germany that having committed all this money to the bail-out fund, they are not being sold down the river.

MT: Absolutely. Indeed some of the banks with the biggest exposure to Greece and the other PIIGS countries (Portugal, Italy, Ireland, Greece and Spain) are German and French banks so it's not so much a bail-out of Greece, as a bail-out of German banks.

TW: Just looking at the bail-out plan that is being signed off now. Is that enough to protect the euro, or is the euro genuinely at risk at the moment?

MT: I think there is a real risk. I am not saying that it is certain to collapse but the bail-out plan is bit like a pay-day loan. It will buy some time but it does not solve the fundamental problem which is that Greece can't service the debt it has got.

TW: It is a huge amount of money isn't it?

MT: It is enormous amount of money because it is more than twice the total amount of the debt in Greece but I think that bail-out fund is intended to cover the remainder the of the PIGS, the club-med countries.

TW: Thank you Mark. 


To visit PA's thinking on this topic please click here

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