June 15, 2010 - The euro is barely intact, and rescuing the banks only worsened the financial crisis, Roger Nightingale, strategist at Pointon York, told CNBC on Tuesday.
Nightingale believes the euro project is basically extinct. “You can keep dead bodies alive, can’t you? You prop them up in a chair, and pretend they’re alive. But everyone knows they’re not.”
Analysts at the French financial group AXA sent an ominous forecast that the euro zone will break in half or disintegrate, dismissing Europe's 750 billion (£623 billion) rescue package for Club Med nations as temporary pain relief that fails to cure the root of the problem. The bailout assumes that citizens in Greece and other Club Med democracies will endure years of pain for the sake of foreign creditors.
Nighingale believes this disintegration has already happened. “The Euro is barely intact, and the European economy is a mess.”
His comments echo the sentiment of widely-followed economist Nouriel Roubini, who told CNBC that the risk of a double-dip recession is growing especially fast in the euro zone, where restructuring Greece's debt is inevitable.
The European recovery has been very, very modest, according to Nightingale. “We are at the mid-point in the cycle, and should be growing at the fastest rate we should achieve in the cycle. But growth is virtually zero,” he said. “This is extremely worrying,”
In addition, Pimco's Mohamed El-Erian told CNBC that investors face years of slower growth obstacles due to the instability in Europe, and that policy makers have few stimulative tools left at their disposal should conditions worsen.
Saving the banks was a big mistake, according to Nightingale, who claims that authorities took money away from the people who could manage it and gave it to the banks, making the economic situation worse.
But other experts disagree. Sheila Bair, Chairman of the US Federal Deposit Insurance Corporation, said on Tuesday that the exposure of U.S. banks to the euro zone crisis was limited. “The banking system is healing,” she said.
With the possibility of euro zone disintegration becoming more salient by the day, Asia is becoming increasingly wary that the situation echoes that in Asia 11-12 years ago. But experts have faith that China can recalibrate its economy, boosting consumption and increasing exports, in ways Japan and Germany failed to accomplish.
“The balance sheet of China is resilient compared to the PIIGS countries,” Gita Wirjawan from Investment Coordinating Board of Indonesia, said.
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