Tags: Altman | eurozone | crisis | halftime

Roger Altman: European Debt Crisis Only at ‘Halftime’

Thursday, 11 Oct 2012 11:08 AM

The European debt crisis is only about halfway complete and will take years to unwind, said Roger Altman, chairman of Evercore Partners and former Deputy Treasury Secretary.

The good news is, the bulk of the damage the crisis has inflicted on the markets has run its course, though full recovery will take a while due to the structural changes the currency zone must undertake.

“I am afraid that we are only around halftime in the eurozone crisis. I really think this is going to play out with great difficulty over the next couple of years, and when you think of the need for Europe to move toward a reasonable form of fiscal union and a reasonable form of banking union, think how slowly it is going to take them to get there if you look what’s really occurring day in and day out,” Altman told CNBC.

Editor's Note: The Final Turning Predicted for America. See Proof.

“Maybe the worst from a market point of view of the eurozone crisis is behind us, but in terms of the big picture this is going to take another couple of years at least.”

The European Central Bank (ECB) has unveiled a program under which it will buy sovereign debt carrying maturities of up to three years from troubled countries to lower borrowing costs, with Spain seen as the likely candidate.

Yields on the Spanish 10-year note have soared above 7 percent this year, a level seen by markets as unsustainable and a threshold that indicates a country is in need of a bailout.

The ECB will only buy sovereign debt provided a country seeks bailout financing such as from the continent’s rescue fund, the European Stability Mechanism (ESM), and agrees to lending terms such as pledges to cut spending and narrow deficits.

The sooner Spain steps up and applies, the better.

“I think the ECB’s pledge that it will intervene in the secondary markets for the weaker sovereigns as long as they apply for primary loans and accept the conditionality of that from the ESM, is a very serious and big pledge,” Altman said.

“It’s just up to Spain, which is the next in line, to actually apply for that and accept the reforms that are going to be necessary,” he added.

“They are going to have to do it. I don’t think they have any alternative.”

Meanwhile, Standard & Poor’s cut Spain’s long-term credit rating to ‘BBB-’ from ‘BBB+’ and cut its short-term credit rating to ‘A-3’ from ‘A-2’.

The ratings agency said Spain’s deepening economic recession is limiting the Spanish government’s policy options and added that rising unemployment and spending constraints are likely to fuel social discontent and contribute to friction between Spain’s central and regional governments, whom Madrid helps finance.

“In our view, the capacity of Spain’s political institutions (both domestic and multilateral) to deal with the severe challenges posed by the current economic and financial crisis is declining,” S&P said.

Editor's Note: The Final Turning Predicted for America. See Proof.

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The European debt crisis is only about halfway complete and will take years to unwind, said Roger Altman, chairman of Evercore Partners and former Deputy Treasury Secretary.
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2012-08-11
 

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