Derek Halpenny, Bank Of Tokyo-Mitsubishi UFJ

(This is not a legal transcript. Bloomberg LP cannot guarantee its accuracy.)

DEREK HALPENNY, EUROPEAN HEAD OF FX RESEARCH, BANK OF TOKYO-MITSUBISHI UFJ, TALKS ABOUT EUROPE AND THE ECONOMY AT BLOOMBERG SURVEILLANCE

JUNE 22, 2011

SPEAKERS: TOM KEENE, BLOOMBERG SURVEILLANCE HOST

KEN PREWITT, BLOOMBERG SURVEILLANCE CO-HOST

DEREK HALPENNY, EUROPEAN HEAD OF FX RESEARCH, BANK OF TOKYO-MITSUBISHI UFJ

7:18

TOM KEENE, BLOOMBERG SURVEILLANCE HOST: From London, Derek Halpenny, Bank of Tokyo Mitsubishi. Derek, good morning.

DEREK HALPENNY, EUROPEAN HEAD OF FX RESEARCH, BANK OF TOKYO-MITSUBISHI UFJ: Hi -

KEENE: In your research note, you really focus on an eye to be kept on Spain and Italy. I mean everything's widening out here as we go in search of voluntary. Where is the voluntary?

HALPENNY: In terms of a bond deal?

KEENE: A bond deal.

HALPENNY: Well, it's difficult to fathom, I must admit, that there's any real appetite for a voluntary rollover of debt on the part of private investors. One would have to assume that there is some form of incentives and that the markets today are reporting that Germany's meeting some of its domestic banks to discuss a way to include them in some form of deal, but I must say the market's for one are skeptical of the ability to persuade private investors to voluntarily rollover their debt.

KEN PREWITT, BLOOMBERG SURVEILLANCE CO-HOST: Well, Derek, you know until fairly recently here, I think a lot of us in America didn't know that people in Europe were familiar with the phrase, kick the can down the road. But no matter what comes out of this, and no matter which country involves, is that pretty much what's going to happen?

HALPENNY: It's certainly in our belief. I think we all know the hurdles that lie ahead. We got through an important one last night. But there are numerous more and Tom mentioned the big one in terms of including private investors. But ultimately I think very much it's quite likely that they'll get the EUR12 billion (ph) and that some form of second bailout will eventually be agreed. I'm not sure how much of that will be willing to private investors, but nonetheless, something will be agreed and ultimately it's about putting more gas on Greece, which will ultimately increase the debt servicing costs for Greece. And I think makes this all the more likely that possibly in 18 months time, we'll be in a situation very similar today with the markets beginning to put the sums together and estimating that by 2014, Greece will again be in a situation where potentially they will need external assistance. So yes, I think it is about kicking the can down the road. Now the process of that of course is to try and deleverage the private sector as much as possible. So to make public the debt so that when some final restructuring of debt takes place, that the risks of contagion are considerably less than what they are perceived as being today.

PREWITT: So the sequence is Papandreou passes the vote of confidence that happened yesterday, then the Greece legislator passes an austerity budget and then Greece gets the EUR12 billion. And then we're going to worry later about whether Papandreou can make all those austerity measures stick and that Greeks will start to pay their taxes?

HALPENNY: Yes, well, the crucial thing is EUR12 billion because between the 15 and the 22 of July, Greece has about EUR6, EUR6.5 billion worth of T-bills rolling over that need to be rolled over, basically. So that would be - if we didn't have the EUR12 billion trans (ph) by then, the T-bill auctions, which have been going relatively well considering there would be a considerable risk that those auctions would dry up at that point in time. So crucially, EUR12 billion must be agreed before that timeline. Then the immediate aftermath of that, we must have some kind of clarity in regard to -

KEENE: Right.

HALPENNY: - the second bailout.

KEENE: Derek, the elephant in the room here is that we can talk about finance and we can talk about almost what I'll call political monetary economy. There's a real economy out there. Within your study of economics and you're witnessing austerity play out with a Plan B debate in the United Kingdom, within economics can you have these countries run with real rates that high and GDP rolling over to a persistent recessionary levels?

HALPENNY: Well, that's the problem in the periphery and nobody really pays very much attention to the fact that the consequences of all this will be economic eventually in terms of the relative tightening of financial market conditions makes it all the more unlikely that when added with austerity that's required, it makes it, I think, near-on impossible for these countries to implement austerity without some form of offsetting monetary accommodation. And that's of course, the real problem for these European countries within the single block currency (ph) -

KEENE: What is your strategy, Derek, on Euro right now?

HALPENNY: Well, I'm a little bit worried to sell right here, given my scenario and my assumption that somehow we'll muddle through over the next couple of weeks. We could see the Euro holding up reasonably well, but as you pointed out, I think the macro economics will come back to the fore or possible after that and I think the consequences of all this will become much more evidenced in the second half of this year. And the whole dynamic in terms of Europe outperforming the United States I think is going to change and that in itself, I think, will be a key catalyst for pushing the Euro lower in the second half of the year.

KEENE: Derek, thank you so much. Derek Halpenny from the trading desk, Bank of Tokyo-Mitsubishi in London.

7:24

***END OF TRANSCRIPT***

THIS TRANSCRIPT MAY NOT BE 100% ACCURATE AND MAY CONTAIN MISSPELLINGS AND OTHER INACCURACIES. THIS TRANSCRIPT IS PROVIDED "AS IS," WITHOUT EXPRESS OR IMPLIED WARRANTIES OF ANY KIND. BLOOMBERG RETAINS ALL RIGHTS TO THIS TRANSCRIPT AND PROVIDES IT SOLELY FOR YOUR PERSONAL, NON-COMMERCIAL USE. BLOOMBERG, ITS SUPPLIERS AND THIRD-PARTY AGENTS SHALL HAVE NO LIABILITY FOR ERRORS IN THIS TRANSCRIPT OR FOR LOST PROFITS, LOSSES OR DIRECT, INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR PUNITIVE DAMAGES IN CONNECTION WITH THE FURNISHING, PERFORMANCE, OR USE OF SUCH TRANSCRIPT. NEITHER THE INFORMATION NOR ANY OPINION EXPRESSED IN THIS TRANSCRIPT CONSTITUTES A SOLICITATION OF THE PURCHASE OR SALE OF SECURITIES OR COMMODITIES. ANY OPINION EXPRESSED IN THE TRANSCRIPT DOES NOT NECESSARILY REFLECT THE VIEWS OF BLOOMBERG LP.

[Copy: Content and programming copyright 2011 BLOOMBERG, LP. ALL RIGHTS RESERVED. Copyright 2011 CQ-Roll Call, Inc. All materials herein are protected by United States copyright law and may not be reproduced, distributed, transmitted, displayed, published or broadcast without the prior written permission of CQ-Roll Call. You may not alter or remove any trademark, copyright or other notice from copies of the content.]

For more Bloomberg Multimedia see {AV [GO]}