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December 3, 2010

A Lorne/short fund

By Spear's

Even as the peripheral countries flounder, thanks to its ‘German economy’, Switzerland will survive the next years in good condition, says Lorne Baring of B Capital

Even as the peripheral countries flounder, thanks to its ‘German economy’, Switzerland will survive the next years in good condition, says Lorne Baring of B Capital. Other countries still have ‘legacy issues of banks that have too much debt that is under water and capital adequacy issues’; there are still writedowns to come.

In a view widely reflected across the financial world, Baring says Portugal is next: ‘We’re going to see market forces move from a focus on Greece to Ireland to Portugal to Spain. The market is never wrong, and it is extremely unforgiving. It preys on the debt of countries which the politicians have badly handled.’ The finance minister of Spain denying that there is a problem is a cliché too far.

‘The political leadership in the peripheral EU countries maintain that they can handle the deficit themselves while the market increasingly bets against them. The euro and CDS spreads show in absolute clarity what the outcome will be while the governments involved try in vain to front an orderly retreat in order to keep face with their electorate.

‘If it gets to Spain we are looking at a package beyond the resources of EU nations. This means IMF or more likely a G7/G20 rescue package. It would not be a surprise to me to see China intervene, surprising at that would have been a couple of years ago.’

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