Bloomberg News

Euro Depends on German Support of Bonds, Tokyo’s Halpenny Says

January 24, 2012

Jan. 23 (Bloomberg) -- Europe’s monetary union may be headed for disintegration if Germany doesn’t come to support the creation of euro-zone bonds, according to Bank of Tokyo Mitsubishi UFJ Ltd.’s Derek Halpenny.

“The final objective must be the joint liability issuance of government bonds,” Halpenny, the European head of currency at Bank of Tokyo in London, said today in a radio interview on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt. “Unless we get something from Germany over the next 12 to 18 months of a very firm objective of reaching that goal as an end game to this crisis, then the risks are we will go more down the disintegration rather than the integration path.”

In December, German Chancellor Angela Merkel rejected the idea of joint euro-area bonds while addressing lawmakers, calling the notion “unthinkable” as long as governments retain national control over budgets. Germany has the largest economy in the 17-nation euro region and the country’s gross domestic product expanded by 3 percent in 2011. It accounts for nearly 30 percent of the total euro-region GDP, according to data compiled by Bloomberg.

Throughout the crisis, Germany has managed to move away from the “weakness in Europe,” Halpenny said. Noting that it was the “big surprise” in 2011, in terms of growth and business sentiment.

In the near term, all eyes are on the European Central Bank. “It is the only institution that can act quickly with a relative degree of independence, outside of the politics,” Halpenny said.

ECB Loans

Last month, the ECB lent European banks an unprecedented 489 billion euros ($636 billion) for three years. The demand for the next offering as a part of the Long Term Refinancing Operation on Feb. 29, is still expected to be “very high,” though “probably lower than December,” ECB President Mario Draghi said last week.

The euro strengthened to an almost three-week high against the dollar as French Finance Minister Francois Baroin said negotiations between Greece and its private creditors are making “tangible progress.”

The 17-nation currency gained 0.6 percent to $1.3014 at 2:25 p.m. New York time after rising to $1.3053, the highest level since Jan. 4.

Bank of Tokyo forecasts that the euro may weaken to $1.15 to $1.24 by the middle of the year, Halpenny said.

--Editors: Dave Liedtka, Paul Cox

To contact the reporter on this story: Austen Sherman in New York at asherman18@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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