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European Debt Crisis Entering Endgame, Nordvig Says: Tom Keene

Europe’s debt crisis is entering its endgame, according to Nomura Holdings Inc.’s Jens Nordvig, who expects a tighter fiscal union and steps by the European Central Bank to reduce borrowing costs.

“We’re now heading into a very final phase of this crisis where we are at a crossroad, where we either have to have a proper backstop or we’re going to face a breakup,” Nordvig, managing director for currency research in New York, said in a Bloomberg Television interview on “Surveillance Midday” with Tom Keene. “The most likely scenario is one where the ECB provides a backstop in the next couple of months.”

The 17-nation euro will likely decline to $1.30 by the end of the year and will fall to $1.15 in the first three months of 2012 if Europe’s central bank “remains reluctant to step in,” according to Nordvig.

The euro was little changed at $1.3323 at 2:13 p.m. New York time, after earlier touching $1.3442, the highest level since Nov. 23. It appreciated 0.6 percent yesterday.

The yield on 10-year Swedish government debt fell to a euro-era record 64 basis points below that of the 10-year German bund on Nov. 25, compared with 31 basis points more than German debt at the end of 2010.

“That really signals that we’re entering a phase that we can call the endgame,” Nordvig, 37, said. “Core euro-zone counties including Germany are starting to see their bond markets underperform, and that is really a function of the mistrust in the whole currency union overall.”

Italy was again forced to pay above the 7 percent threshold that led Greece, Portugal and Ireland to seek bailouts when it sold 7.5 billion euros ($10.1 billion) in bonds. The amount was short of the top range of 8 billion euros for the sale.

“We need to have some mechanism that brings yields back to a sustainable level,” Nordvig said. “Otherwise we’re going to have defaults.”

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