Julia Coronado: Uncertainty surrounds European debt deal

Jeremy Hobson Oct 31, 2011

Julia Coronado: Uncertainty surrounds European debt deal

Jeremy Hobson Oct 31, 2011

Jeremy Hobson: One stock that is not trading this morning
is that of MF Global. The brokerage firm — which is run by former New Jersey Governor
Jon Corzine — has seen its stock price collapse in the last week. And trading was halted this morning amid fears about a bankruptcy filing.

We’ll start with that, and here to explain live is our New York bureau chief Heidi Moore. Good morning.

Heidi Moore: Good morning.

Hobson: So tell us what’s going on at MF Global?

Moore: Sure. A lot of people haven’t heard of MF Global. All you need to know is that it’s a mid-sized firm that’s involved in commodities; and it’s run by Jon Corzine, who is the former governor of New Jersey, and also the former CEO of Goldman Sachs.

So what MF did was it loaded up on European sovereign debt — $6.3 billion worth. And now it’s paying the price. No one else wants to buy that debt, MF couldn’t dump it. And they’ve negotiated bankruptcy or a sale over the weekend — we’ll soon know. The interesting thing here is that MF almost died back in ’08 and we saved it. And it came back, it clearly didn’t learn any of its lessons.

Hobson: Marketplace New York bureau chief Heidi Moore — thanks Heidi.

And let’s get some analysis now from Julia Coronado, who is chief economist at the investment bank BNP Paribas. She is with us live from New York as she is every Monday. Good morning.

Julia Coronado: Good morning.

Hobson: So Julia, is this possibly the Bear Stearns of the European debt crisis? In other words, are there going to be more financial firms like this that are tied up in European debt and are brought down?

Coronado: I don’t think so. MF Global took a very special interest in European debt, and I don’t think a lot of the other American firms have taken a similar view. So I don’t expect a lot of fallout to other firms.

That said, I do think this highlights the vulnerabilities to the euro zone crisis. And there are still questions that are circulating and swirling around about the larger countries like Spain and Italy, and how they’re going to fund themselves into the future.

Hobson: Well you mention Italy — I have seen a lot of headlines about Italy this morning. What is the latest concern there?

Coronado: Well it’s just the concern — there was so much optimism after the announcement last week, but as you dig through the details, the details are still yet to be worked out. And so it’s still not clear how a country like Italy is going to finance its very, very large deficits going forward. And we’re still very much waiting on details, and then there’s a lot of balls still in the air.

Hobson: You’re talking about the grand plan that came out last week to deal with the European debt crisis. I noticed one of the things that it called for was help from the Chinese — who haven’t said yes yet.

Coronado: Absolutely. So there’s a lot of hopeful ideas about taking the money that Europe has put forward, and that the IMF have put forward, and leveraging that and getting private investors to come in and put their money up. But of course, that all depends on the terms that you get on the deal.

So, sure, China might be willing to participate, but they’re going to want to get a pretty good return. And is that return enough — or is it so high that it puts Italy back into trouble? So, really a lot of questions still around where we’re going to go from here.

Hobson: Julia Coronado, chief economist with the investment bank BNP Paribas, thanks so much.

Coronado: All right, my pleasure.

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