Europe Will Wait Until 'Near Death' Before Acting: Pro
Associate Editor, CNBC
Markets will face more difficulty as the protracted euro zone debt crisis limps along before things begin to get better and capital preservation dominating investors minds, one market expert told CNBC Thursday.
"We know that European policy makers do drag their heels. They’re more reactionary, they’re less proactive than the Federal Reserve in the U.S.," Stuart Oakley, head of emerging markets foreign exchange Asia at Royal Bank of Scotland told CNBC’s “Worldwide Exchange.”
"In Europe you are going to need a near death experience before you get some concerted policy action. That policy action will have to be pretty special to have the desired effect," Oakley said.
He said the "near death" situation would probably be in the first instance Spain’s borrowing costs hitting 7 percent on its ten-year bond.
Policy action needed could involve coordinated central bank easing to include the European Central Bank , the Federal Reserve, Bank of Japan and the Bank of England.
“What is more likely to happen though will be that the ECB will finally cave in and will become the lender of last resort,” he said.
He said history showed how “these things can get out of hand very quickly,” citing the Lehman brothers collapse of 2008, the dot com bubble burst in 2001 and Bear Sterns in 2007.
More Pain in Spain?
With the eye of the storm shifting from Greece to Spain in recent days as the country’s banking system – in particular fourth-largest bank Bankia - has become Europe’s latest problem child amid soaring government borrowing costs, the country is failing to see the “wood for the trees”, Gemma Godfrey, head of investment strategy at Brooks Macdonald Asset Management told CNBC.
“The focus is on Spain at the moment and the Spanish government can’t see the wood for the trees and the lack of working capital could cause a catastrophe.
They’re talking about banks having to raise about 30 billion euros ($37.2 billion) but we’ve seen depositors withdraw 31 billion euros,” Godfrey said.
She added Spain’s refusal to seek financial help would have to change in the future as the situation eventually overpowers the government.