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CNN transcript of an interview between becky Anderson and Stephen Pope

Thursday March 8th 2012

CONNECT THE WORLD ~ Greek Bond Swaps Explained; Bigger Picture for Europe ~ Aired March 8, 2012

ANDERSON: You get an idea of the impact that this will have for Greece and why it's so important. But what's the bigger picture for Europe as it struggles forward? We'll, I'm going to discuss that with Stephen Pope, he's managing partner of the Spotlight Ideas. Probably forgot more about this European debt crisis than I will never know, and I did business journalism for more than a decade.

It's one of these stories that you just -- it's difficult to get your head around it. Jim explaining it really well, there. Have we crossed the T's and dotted the I's on Greece now?

STEPHEN POPE, MANAGING PARTNER, SPOTLIGHT IDEAS: It's largely yes, because we've got sufficient numbers of people signing up for the PSI agreement, and it looks as though we will not have to activate the Collective Action Clauses, so there's no CDS trigger going through there.

What I think is going to be the issue, though, is the private sector investors take this huge hit. They're around 73 percent net to write-down on their asset value. They get rolled over into new 30-year bonds, which will become illiquid.

But the ECB are sitting there happily taking their full repayment, because they said, well, we were ahead of the game in assisting Greece in terms of its monetary transmission.

ANDERSON: All right. So, what you're suggesting to me, and this isn't a fair playing field, effectively, at this point. What, though, does it mean for Europe going forward? Because to a certain extent, my sense is we can sort of box up Greece and put it there --

POPE: Right.

ANDERSON: -- but we're going this way. What does it mean for Europe?

POPE: Well, I think if we have the ECB taking a full repayment, what you're going to find out is that people who are now holding debt issued by Portugal are going to be similarly worried, because the ECB have a very large position in Portuguese debt.

Now, Portugal, if it has an issue, is a small element within the entire structure in the eurozone, but we go to its neighbor, Spain, and I think we can find that Prime Minister Rajoy has been a little bit of a disappointment so far.

For his first measure going back to Brussels is that they have to give Spain some accommodation on paring back its deficit levels. Then you have the Spanish banks, who are sitting there with assets in property and land still marked at 100 percent of the face value. It clearly is not worth 100 percent, so the write-downs are huge.

ANDERSON: What really matters, Stephen, is whether if I was running today a multibillion-dollar fund, would I be buying Europe again or not?

POPE: I think if you're there for the very short-term, quick trade, then you'll probably buy it tomorrow morning, hoping that you're going to see the opportunity to be out. But I think you would be looking to try and take quick profits on this, because once we have settled Greece, and if we find that the Greek banks are being subsidized by the government, and so shareholders --

ANDERSON: Which they will be, of course.

POPE: Of course. And bondholders and shareholders in the banks are getting a fully payout, whilst if you're in the sovereign name, which theoretically should be a better risk, but you're taking a deep cut, there's going to be a lot of resentment.

And of course, we haven't crossed the line, yet, in terms of are the Greeks going to allow foreign oversight on their national budget. That's another crucial issue to be tossed.

ANDERSON: What would you do if -- or what would you say if I came to you, then, tomorrow after I'd bought and sold Europe very quickly --

POPE: Yes.

ANDERSON: What would you say? Is Europe a decent bet going forward? I'm talking about, now, short, medium, and long-term. Because I'm told, and many people are beginning to wonder, whether this lost decade is now a reality for Europe.

POPE: Well, certainly I think there is going to be a continuation of this lost decade and struggling efforts to try and find growth on the Mediterranean periphery.

I think if you invest in the core nations, you're going to be in decent shape, but certainly, I think, going forward, you've got to be very sort of much prepared for a bumpy ride if you want to take the risk of buying Portugal and Spain. Because I think Portugal will be the next shoe to fall.

ANDERSON: Fascinating stuff, Stephen Pope, we thank you very much, indeed, for joining us. My goodness.


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