Euro Crisis Still Scares Investors Despite New Leaders
Staff Writer, CNBC.com
The changing of the guard at the top of Italy and Greece provided a small boost to markets Monday morning, but the new leaders have a long way to go to restore market confidence, investors warned Monday.
"The bond markets want repression, depression, their money back and somebody to pay them back," Mark Tinker, global portfolio manager at Axa Framlingtonm told CNBC Monday. "The equity markets have been spending months saying: 'Stop picking our pockets. We are not going to put money into banks for you to pay bond investors with.'"
Italy is hoping to push through a closely watched bond saleon Monday.
On Saturday, Silvio Berlusconi finally resigned as prime minister of Italy. Mario Monti, the former head of the European Competition Commission, is trying to form a government to replace the Berlusconi regime.
George Papandreou stepped down as prime Minister of Greece, in favor of another technocrat, Lucas Papademos.
Yields on Italian 10-year bonds last week soared to unsustainable levels amid speculation about the country's political situation.
"It's not down to him (Monti), it's down to the ECB (European Central Bank). I think it held back buying when it wasn't quite clear whether he would be the new prime minister," said Tinker.
European Central Bank Governing Council member Jens Weidmann said the bank’s current policy stance is "appropriate," in an interview with the Financial Times published Monday.
He added that the central bank won’t help Italy by defining a maximum bond yield and defending it through purchases. "Fixing an interest rate for a country is certainly not compatible with our mandate," he said. "You would guarantee a certain refinancing cost for a government and you could not argue that this was not monetary financing."
"The problems are so deep-seated and structural (in Italy) that you will never solve them in a few years," Julian Pendock, partner at Senhouse Capital, said Monday.
He compared Italy's current situation to the UK before the tenure of Prime Minister Margaret Thatcher.
"If this goes wrong, there's no democratic safety valve when austerity fatigue comes back again," he warned.
"Every week we have seen a 'solution,' and it has been anything but. Policy makers have been reacting to negative news and market wobbles and taking steps without thinking through the longer-term repercussions, particularly with respect to getting rid of the two governments who they don't think are with the program and replacing them with more malleable figures with whom they have worked closely in the past."
He believes that "all the arguments for saving the euro are negative."
Both Papademos and Monti have previously held high-ranking jobs in European institutions, the ECB for Papademos and the European Commission for Monti.
"Northern European savers, who are nearly all bond savers, have got their men increasingly in position," said Tinker. "They want people who understand that their job is to preserve the euro and not worry about growth."
"The ECB are using the markets as a tool to get the politicians that they want," he added. "The people that hold all the debt want austerity measures, and the people who borrowed all the money want inflation and growth. As an equity investor, I largely don't want to play in that pool."