Euro Zone Crisis Not a Big Deal for Long: Analyst
The euro zone debt crisis will not be a big deal for the markets within the next few months, Larry Kantor, managing director and head of research at Barclays Capital, told CNBC.
Investors will focus on other issues in the future, he added.
“The European Central Bankhas stepped up enough to alleviate the debt crisis situation,” Kantor said, adding that the central bank’s long-term refinancing operation(LTRO) was the right thing to do.
Kantor said that with the ECB’s actions in increasing liquidity in the system, he doesn’t see Italian bond yields creeping up to their previous highs again.
“We got into a credit crunch in the second half of last year, and that’s when central banks are supposed to respond. And they have. They’ve alleviated the liquidity situation. It’s had very positive spill-over effects into the European debt markets,” he told CNBC’s “European Closing Bell.”
“So we’ve now unwound that very dangerous spiral where higher yields in Italian and Spanish debt were generating selling instead of buying,” he added. “They’ve (the ECB) has broken that negative cycle.”
“Also we’ve seen short-term interest rates fall with all the liquidity there. This is going to help moderate the downturn that the euro area is now in.”
But Kantor pointed out that the ECB’s LTROs are not the solution for the sovereign debt crisis.
“It’s not a solution for central banks to pump money into banks, but it alleviates what was a very dangerous situation. It buys a lot of time,” he said. “We still need countries to do the right thing.”
European leaders’ signing of a fiscal pactat the summit in Brussels is a step toward a solution, Kantor said.
He warned, however, that Portugal may not be out of the woods.
“These are short-term risks to the market,” he said. “The big question is Italy and Spain. These are countries where you can’t afford to see a default, because that would bring down the financial system. And that’s where you can have a lot more confidence — at least over the next few months.”
“In other words,” Kantor said. “The ECB has put in a successful ring fence around contagion so that we can sustain the Greeces and Portugals.”
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