Schwarzman Says European-Debt Answer Hinges on Fiscal Union
Stephen Schwarzman, chairman and chief executive officer of Blackstone Group LP, said fiscal union will be at the center of any resolution of the European sovereign-debt crisis.
“The rest of the world is prepared to be supportive if it looks like a European solution actually is going to work, and the Europeans will put up a lot of money to make it happen,” Schwarzman said today in an interview on Bloomberg Television’s “InBusiness.”
“They all end up leading back to Germany, some type of fiscal union, and a stronger amount of capital for their rescue fund than they currently have,” Schwarzman said.
Six central banks led by the U.S. Federal Reserve today lowered the cost of emergency dollar funding for financial companies. U.S. and European stocks rallied on the move aimed at easing strains in markets and expanding central banks’ capacity to support the global financial system.
Schwarzman, whose New York-based firm (BX) is the world’s biggest private-equity manager, cited India as an example of a country that has responded well to the crisis unfolding in Europe. India is doing “quite well” even with declines of about 14 percent in its currency and 21 percent in its equity market this year, he said.
“The reason is India is responding to the problems in Europe,” Schwarzman said. “Right now the point of maximum vulnerability for the global system is Europe.”
Blackstone expects to invest as much $500 million to $720 million a year in deals in India over the next several years, Akhil Gupta, chairman of the firm’s India operations, told Reuters last week. Blackstone has invested about $1.8 billion in India since 2006.
Schwarzman said he found yesterday’s downgrades of long- term credit ratings at Bank of America Corp., Goldman Sachs Group Inc. and Citigroup Inc. “a bit disconcerting.” The banks had their grades reduced to A- from A by Standard & Poor’s after the ratings firm revised criteria for the world’s biggest lenders.
“The concept that the whole class is downgraded raises their cost of capital, which makes it more and more difficult for banks to do their job,” Schwarzman said. “Banks are critically important for recycling capital and lending it to grow the global economy.”
One could argue the downgrades weren’t justified and that the additional pressure is starting to affect “the normal interaction of the economy,” he said.
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