welcome. i'm ross westgate. >> these are you headlines. >> we get a risk on trade with stocks. the relief rally has already begun. starting to lose a little bit of steam despite a strong open. greece's party wins the majority of parliament. >> a coalition will be formed to calm fears. >> the obama administration warns not to expect any resolution to europe's problems. >> no relief rally in india as the bank fails to lower interest

rates. citing high inflation. . okay. welcome to today's issue of "worldwide exchange". >> i'm back from vienna. you're off to brazil. >> that's why they call it "worldwide exchange". what's going on? >> let's get right to it. supporters in greece celebrating their party's victory over the radical leftist opposition. this along despite a long day of coalition talks ahead. speaking in athens the conservative leader said he was confident a government could be

formed. >> translator: we are committed to work with dedication and consistency in toward embark on a difficult path. once we get to the top of the hill a solution will emerge. a hopeful solution. >> meanwhile, the leader of the anti-bailout party said the radical left would remain a force to be reckoned with. >> translator: we will be present in any process as the opposition party. we will stand up for the people because of the people's intervening in the processes, and strong presence to the memoranda. we will be judgmental on this. >> it was suggested that then to be a part of the coalition government democracy they want to return that government as well. have to see how those discussion

goss. as we go through one hour of trading in europe we got that expected perk up first thing. we are just losing some of that early steam. advances still outpace decliners 8-2. a big bounce in banks as well. ftse 100 up. over a percent for the dax. the ibex is down. it was interesting last week the banks saw a rally, yields went up. let's show you the sectors. first thing this morning we saw bank index in spain up. autos currently a firm sector. chemicals, household goods much banks now are pretty flat. starteding to decline somewhat in spain and should be getting

the spanish banks ahead of the g-20 in mexico. bond yields? initially big sell off in puts and decrease in spanish yields. i wouldn't call it a big decrease. 6.9%. italian ten year back over the 6% level. ten year 6.0%. euro dollar, 127.48. we're now almost a full euro sent below that, 1.2674. aussie dollar got to a fresh month high, 1.3135. it was a huge week going on this week in terms of data every where out of the uk particularly, the bank of

england started. >> those greek election results indeed gave asian investors something to cheer about. the nikkei closed at one month high and gained 1.8%. the shanghai and hang seng index were also higher but hong kong changes clearly bucked the trend down over 4% this on concerns it has overpaid to buy the metal exchange for $2.2 billion. in australia miners helped to power the index higher and the only major asian index in the red is india. it's under pressure as india's central bank to price the markets on hold citing high inflation and more about that later in the show. that's all for me here in asia. >> so let's get over to athens. steve has been there, of course, since the weekend.

steve, the job now goes of course to form a coalition government if we can. is that going to work? >> reporter: well, there are great hopes that this time around unlike on may 6th, the leader of the largest winning party in this election can form a government. now, i'm sure you're aware of article 37 of the greek constitution it means each of the top three parties will get a chance to form a government. first the biggest, then the second biggest and then the third biggest. and they can form a government even if it won't be this government of national salvation which includes all parties. of course they said they would not take part in the government. the greek left party and passive, between those two they get another 50 seats which would carry new democracy over the line to having a parliamentary majority giving them in total sum in the region of 179 seats.

then the real hard work starts because new democracy and passive have found it very difficult network given previously. they are not the best of bed fellows. to see a government working and a coalition moving towards the austerity program and sticking with the troy okay memoranda is yet to be seen. but for those who believe that a policy of working with the eu and imf is better than the more confrontational policy which the two were advocating. let's not forget the latter party were still very much pro euro, they didn't want the bailout terms which mean that the greeks have to stick very strenuously at the moment to terms to get their deficit under control by 2014. we're expecting some form of grant from the credit foundations there may be lee way on timing, which means even by

2020, if the plan works the greeks will still have a debt to gdp of 120%, have eradicated the government deficit and the primary balance and they are working very close towards those goals but they have some big problems not the least the fact the greek economy is still shrinking and shrinking hard. gdp lost around 6 percentage points. crisis level contraction in the economy down by over 25%, the unemployment rate coming in to this crisis in 2008 was the reason 7.2% is currently sitting at around 22% with youth unemployment around the 50% level. yes, this is a step in the right direction for those who believe that plan a is the right way to go forward but now real concerns about whether the coalition can make it work, stick to austerity and c whether credit will say we'll give you a little bit of lee way on some of the timing. >> all right. steve, thanks very much for

that. we'll catch up with you later. we talked about how long. it's worth pointing out not even 12 hours spanish ten year yields have gone back through 7% level on the trade on reuters. >> all right. let's introduce our guest host for the next hour, chief european economist at barclay's. and political strategist is also here with us. should people start to position for the resumption of a risk off trade? >> that might be a bit high. the markets want to see what's going on. this is a lot of potential changes going on soon in the next few weeks, a lot of key central bank meetings. last week we just changed our call on the fed and on the ecb and on the bank of england. we're looking for a lot more easing. >> we heard there was going to

be this major coordination. >> we were discussing these kind of issues for a while. when we hear officials talking such as the conference in frankfurt that was suggested by the ecb president it does seem very much to us that central banks are likely taking further easing steps. >> yet one of the first response to the elections given new democracy a pro bailout party can assemble a coalition government. is that a risk? >> well, you know, central banks such as ecb will focus very much on what problems they have identified which are things what's going on in the broader economy and how levels of confidence are, what the inflation risks are and i think a particular point that the ecb president was emphasizing, elements of shade of this coming through with the bank of england last week that central banks are quite concerned that commercial banks are not delivering enough

lending into the economy and this could hamper future economic progress. these are the key motivations. as for the greek election, i view it as a minor positive, obviously, because at the end of the day democracy did very significantly expand its share. but what seemed to me is that greek electorate took note of the campaign and what everybody was saying and they focused their choices much more clearly. so i think we have a better mandate. >> that choice did go to a party that would have turned down the external funds, rip up the memoranda. >> let's bring in tina on that. what happens now in greece? they prevented any kind of exit for now? we have to go into negotiations for the government and then with the troika as well. you think at some point they have to leave the euro. when? >> well, backing up a little bit, i think that the result

last night buys some time for greece and reduces the turmoil over the last couple of weeks. that's important. gives breathing space for everybody. what's happening right now is that the leader of the new democracy is meeting with the greek president to get his orders to form a coalition. there still could be some uncertainty as that process moves forward. we do think that the socialist party, the other pro memoranda party will join the coalition but i expect to see them negotiate. an announcement could happen as early as today that a coalition has been formed. we remain quite cautious about any new greek government regardless of its composition being table have much shelf life is the simple fact that many, many greek came out against austerity, the terms will still be quite onerous, indeed and we've seen a rapid reversal of living standards that make it very hard even for a new government with a significant majority to be able to pass

these measures. remember the new democracy are old enemies so working together may not be as straightforward as you expect. >> absolutely. tina, stick around. they want to use every single tool they have. they expect some form of action from the bank and suggest cut rates purchase sovereign debt. silva has that take out of frankfurt. >> reporter: i could say it's not the ecb's job and mandate to calm the markets. it's the ecb's job to keep price stability and basically see to it that there are orderly market conditions. the orderly market conditions is the keynote. if anybody thinks the ecb will keep yields down it won't happen. it didn't happen in the past and it won't happen in the future. it's not their job and won't do

anything in the long run anyway because the market knows that the ecb will push for yields on spanish bonds to go to 6% the market will keep throwing it at the ecb until they think they don't need to throw it any more. that's just a waste of money. what the ecb will do and has done in the past when they have the feeling that the markets are really going off kilter and there's panic they will step in. in terms of the rate cap, however, i think the ecb is betting against open doors, mario draghi said at the press conference they were debating rate cuts and my guess is next month we'll probably see them in the off chance a month later but very likely in july. >> silva, thanks for that the. julia, you think these rates will be cut? >> i'm interested in what silva is saying.

she was at the conference in frankfurt on friday and definitely i think the mood of that conference was to greater concern about the economic outlook here. suddenly why not? why not cut rates here? you have likelihood that gdp in the eurozone would have contracted around a quarter of a percentage point. likely to see further weakness in the third quarter of this year. in particular you have to do something to help these countries in southern europe and this is of course the big problem that the austerity that these countries have been presented with and having to undertake is colossal but they are not getting anything real back in return here. >> what do you think of the plan which he was talking in an interview give every german a $1,000 check and they have to spend in southern europe, allow tax breaks for people who purchase vacation homes in greece and southern spain. to some extent what sees saying

let's find ways to have money go from germany to -- to me that southern have we learned anything from the crisis in europe or the u.s.? >> the real big problem is that greece by the end of this year will be owing official organizations about 240 billion euros. more than its gdp which is 200 billion euros. and there are other debts of course that it owes. it just has too much debt, greece and that's really the issue. now we really are dancing around this. it's a bit akin to what happened in the 1920s, when you had the treaty of versailles. people estimate the total liability that germany had under those was 100% of their gdp and spent the next decade really with endless conferences trying to actually find ways. it's never going to recover. >> i want to bring tina back in.

there's this thought in the markets we'll get a big draft of measures and get a shift towards some kind of agreement on the debt mutualization. what's likely to happen politically? >> well the european governments, the head of states, the troika have welcomed the result but made very clear in their response that greece will still meet to meet its conditionality. the initial reaction hasn't changed their position and i don't expect to see dramatic change coming at the eu stance at the end of this month earth. having said that there will be some softening in the terms. you could see a one to two year extension. i expect to see some type of aid because there's some sort of cash crisis coming up in the summer. there will be some goodwill

measures. for the man on the street it won't be a significant change in the pain of austerity. >> tina, good to speak to you. thanks so much for joining us. we'll get you back, tina for more. >> no shortage of things to discuss. >> coming up on today's show we'll also focus on india to find out why the rbi at the electrified market expectations. >> markets have expressed cautious relief at the outcome of the greek elections. we'll go to madrid. it has yields back to the 7% market. >> as chinese premier calls on the g-20 to fight protectionism we'll find out what measures beijing will take. >> the fmc starts its two day policy meeting. big question with yields at record levels.

they want to focus on that. we'll be back with more greek reaction and look ahead to india's surprise when they did nothing today with rates in a few moments. [ male announcer ] this is corporate caterers, miami, florida. in here, great food demands a great presentation. so at&t showed corporate caterers how to better collaborate by using a mobile solution, in a whole new way. using real-time photo sharing abilities, they can create and maintain high standards, memorial day memorial danda

welcome back to the program. the big story, of course is the short-lived relief rally that we're seeing in terms of spain, italy after those greek elections. show the pro bailout party holding the biggest part of the vote. european stocks which were initially rallying giving up some of those gains and take a look at the ten year in spain in particular 7.11 pores. we shot back up that 7% level. italy meanwhile up through 6% to 6.06. bunds benefiting from the flight to safety. that's important. we've seen that flight to safety with germany and uk and only seeing with it britain. let's take the pulse of equities. ibex down in the range of .7%. things are moving quickly. meanwhile the dax up .7%.

meanwhile india's central bank surprised markets this morning by keeping rates on hold. many analysts were expecting a cut of at least 25 basis points. the reserve bank of india is pointing to suborn high inflation. indaisy cpi was 10.4% higher in may from a year earlier. steve, is it the fact that india didn't move, is at any time fact that people are waking up this morning and kind of seeing through these greek elections? what accounts for the negative tone that we're now seeing in the markets? >> there's a combination. one of the biggest issues the markets have is clearly the expectation that greece did fail in the election and there were huge fiscal stimulus and huge marginal stimulus. this takes the pressure off of politicians and politicians only make designates when they are on the back of a cliff. this moved them back from the

live. to expect a lot out of the g-20 over the next couple of days is a bit of a long shot. marco has bought more time but no real decisions and that's the real thing. >> i want to talk india. is there trade here where you would short bunds gets gilts and treasuries. >> clearly there's concern that the germans by take on board the debt of the greek and germans make their debt situation untenable. when you look at spain there's no way germany has the financial power to take that on board. >> people, there's some commentary positioning india's lack of a further easing this morning as showing a back bone and not sort of cowing to markets. are they doing quote-unquote the right thing here >> absolutely 100%. look at the performance of indian bonds over the last couple of years it indicates the market believes in india and

it's a domestic market. no foreign participation. the problems anyone da are not about the interest rates being cut. the problems here we have to deal with and the fiscal problems and the liquidity problems. dropping interest rates won't affect the liquidity situation. buying bonds on the open market as a liquidity that's what they need to do. they don't need to drop interest rates. >> central bank saying look, we're not going to be the shock absorbers for politic, slow reform agenda. >> absolutely. one of the comments they made this morning it's up to the government. the government is making some moves. we've seen the minister of finance moving on at the end of this month and the rbi is winning the battle. >> the india yields are attractive? >> that's a different issue all together. the currency has been affected

by the current deficit problems. >> you have to buy it out? >> no. we think currency will sort itself out. 1% of the current deficit problem was associated to the recent oil hikes previously plus the cost of gold imports. go back to a 3% relatively shortly and any improvement on the fiscal side and fdi and return on the back of that. it will be very sustainable 2.5% in the next six to nine months. >> julian, you want to weigh in? >> it's very interesting, bath it shows us emerging markets are important in the global economy and they have been such a key source of growth here and getting signs that china has been slowing down and india has been slowing down. so it seems to me india has to go down the route of having some stimulus. but i think you're right they do have a huge steel out there with inflation.

>> it's very important to understand india is no different than anywhere else. they made policy decisions in 2008 and 2009 because of the crisis. they have to unwind those decisions. political will to increase subsidies is very easy. throughout the world to say it's time to bring back those subsidies is a very difficult decision. the real crux of the problem is a political one in which it's very difficult to make any real decisions either in reforms or in terms of the real budget. >> we'll leave it there. thank you for coming. julian will stay with us. coming up next we're live in brussels with eurozone finance ministers welcomed the result of the greek elections saying they are confident the country will stick to its bailout terms. taking a look at market reaction this morning, investors may not agree. om#a#a#a#a#a'9#a+=#a#a#a#a#a +g#a

here are the headlines from around the globe. the rally lose s steam. >> new democracy leader prepares

to meet the greek president as he sets about forming a coalition government. >> g-20 leaders welcome the greek election outcome. they are arriving in mexico. obama administration say expect no resolution. >> no relief rally in india. rbi keeps rates on hold. well it felt pretty good this morning for about an hour. and then it started to evaporate. ftse 100 down. dax up. camelback flat. down 1.8% on the ibex. yields are doing it. we've moved firmly straight back on to spain. >> we have. almost think nothing happened over the weekend and to some degree that's the message from markets. we're looking at yields. spain importantly.

7.13%. we test euro highs there. italy 6.04%. even bunds are up 1.44%. on the flight to safety day we're not seeing that in the german bund. the 10 year gilt is benefiting. >> short bund versus treasurys is at the ride. currency markets we got up to a one month high. we're at 1.2633. that's below the level at which we closed on friday around 1.2640 this morning. >> .7 on the morning. >> of course this is all after the greek election results. eurozone finance ministers say expect the new government to stick to its terms. becky has got more for us in brussels. do they mean that? surely there's going to be some shift? >> reporter: well, we shall see. we have a series of meetings coming up in the next couple of weeks which will shed some light

on those issues. the ecb will have some key dates. june 21st and 22nd we have the euro eco meetings in brussels. then on june 22nd, monti will host merkel in rome. we have the greece going against german on the same day as well. june 28th to 29th eu summit right here in brussels and hopefully by then with all of that we should have a bit more of a clue about those issues and where europe goes next and greece goes next in terms of bailout. eu looking for political leadership in greece that will commit to the bailout. looks like under the leadership under the new democracy and coalition around that party we'll have that. the euro released a statement after the results of the greek election became apparent in which they said they welcomed the greek election result but

they hoped they would be a swift formation avenue government in greece but said the troika will return to athens as soon as a new government is announced and they will prepare the first review of the package as well which does hint we could have a bit of wiggle room left in that greek bailout, maybe the timeline as to how long greece will have to repay the bailout. there's various other things that can be done as well. the story this morning that gives the indication of the wiggle room the eu could have. suggests the lending capacity of the european bailout funds dmob creased by another 100 billion euros. that can be achieved by taking the spanish bank bailout after the esff and leaving the esm untouched and leaving the funds

available. back to you. >> catch you later. joining us for more from athens now, euro dollar back to where it was on friday below 1.2640, rallying to a one month high. we quickly moved on from greece straight back to worrying about spain with, you know, the yields there and bigger spanish bank losses. >> reporter: that's right. i think it's fair to say that the problems in europe across spain, not going away any time soon and very difficult for investors to get longer view or scale down their shorts when you have that level of uncertainty around. >> there you are in athens. and one wonders whether the story in greece sort of matters hugely? i don't want -- we're all worried about this greek election. we got the result, the people thought would buy us some time and here we are an hour and a

half into the trading day and it's all negative. >> well, i think the reality is that this result doesn't solve the problems and the main thing is it doesn't answer the question whether agrees will stay in the eurozone. we're on track to get a pro bailout government will help but that government hasn't been formed and there will be some tough negotiations ahead. going on from there greece has a difficult path ahead it and it will be a long time before we can say with any sort of certainty whether greece's future is in or out of the eurozone. >> how intense will the wrangling be on form agnew government. they have to work with somebody? who will it be. >> reporter: they are scaling back on that. but still there's very difficult path ahead for any government because greece does not have a history of coalition, not used

to forming government ace long those lines and the challenges up ahead would be hard for any government wean an outright majority. >> the g-20 meeting, people are now hoping to get some sort of action from here from global policymakers. what are they looking for because the g-20 is about a really, seems like it might come down to deciding whether they will release more funds or authorize more funds for the imf. >> that's probably the most we can hope for from the g-20. i was getting questions this morning. of course in 2008-2009 the g-20 acted very decisively. made very aggressive fiscal stimulus. worth around 2% of global gdp. it helped things. of course now every where really governments are having to focus on fiscal tightening, particularly in europe. so there's no fiscal lee way. on the monetary side you have interest rates practically every

where down close to 0%. you have to think about very unorthodox measures. the bank of england is surprise us there a little bit last week with its announcement. so i think we shouldn't rule out measures coming from central banks but as we were discussing earlier their hands are tied. >> found it remarkable at the g-20 meeting last night the chief spoke with dow jones said it's time for the ecb to detonate, his word, crisis fighting weapons to act in the markets buying yields, bringing yields down for spain and italy to use every stringle instrument, tool, asset in euro. he talked about italy can lengthen the maturity of its debt. it seems the desperation is growing. >> it underlines the gravity of the situation. the ecb is still very reluctant to buy debt. if it wanted to it surely would

have come in a very forceful way. you have to can why that's not happening. there's a lot of capacity out there with the new esm coming in to play. it needs to be ratified and still some extra swit the esff. >> german officials say the foreign ministers comments on giving greece more time isn't the agreed german position. >> reporter: i think certainly there's going to be conflicting voices here. there's a large amount of willingness for negotiation i think in some areas, other areas want to take a much harder line and that's the difficulty with the european decision-making. there's no single voice and you'll get conflicting opinions throughout. the bottom line is there will be some room for some renegotiation for greece giving the expected economic performance and given the way things are going at the

moment. not a whole scale rewrite of the memoranda and leaves us in a very difficult position. >> euro target? >> reporter: from here we've got a target of modest weakness to year end. i think it's fairly easy to see euro going to retest the 2010 lows within a year's time. that's also a dollar recovery story. looking for 1.20 is reasonable for 2013. >> euro still exists in a year's time. thanks for joining us. >> let's just recap where we stand with the european market action right now. offer greek rally stocks have declined this morning as the ibex is down 2% right now. euro dollar moving rapidly lower so we hit 1.2748 first thing now 1.2635. >> we continue to add to that

downward move. the ratio of nonperforming loans has rise zwroen the highest levels in 18 years. spanish banks are trading lower after the results. french banks are down this morning as well. you can see bankinter and bbva down more than 3%. this on the yield on the ten year spanish debt zoomed past the 7% mark and now at 7.13%. we have more from madrid. is there a sense where your that policymakers will not give any more time post the greek elections given the crisis in spain? >> reporter: this morning the comments here really were positive about greece. all the newspapers we're pointing out the outcome was positive news for tur jobs for

the credibility of the euro. spanish prime minister said overnight it was a good news for greece but also for spain and they would push for european fiscal and banking union at the g-20 meeting. but we still have some negative sentiment in the banking sector. 8.72% in april. highest ever in 18 years up from 8.72% in march. that's one negative announcement. the other piece of news of course is we're waiting this week the results of the financial need of the spanish banking sector. last week, ecb said it would be up to 50 euros. the spanish prime minister has the numbers according to the morning newspaper and this is bringing a question about the

financial capacity of the risk from europe according to the institute of finance. it would help a small economy but hardly enough to deal with a larger country. other bad news for the banking sector, moody's is about to downgrade its rating on spanish banks. that's the logical reaction after its recent downgrade of the spanish economy. back to you. >> i want to get a quick comment on this from julian who has been with us all hour. spain will auction this debt on thursday. who shows up for it? >> it's just going to be the spanish banks, i would imagine under these circumstances. it's worth noting nonresident holdings really are about 22% of the total. if you go back a year two. it was around half. so, a lot of -- >> still 22%?

>> that's a problem. but it does mean that the amount of selling pressure is actually in theory going down here. but at the same time we're in limbo and the spanish economy is exceptionally weak and unemployment is climbing rapidly. i think the spanish government does need to come out in a more convincing way here and come up with specific measures to correct the budget. we're not really -- >> i'm getting a sense here that market players will push this this morning the way -- taken last monday, decided we want some kind of resolution earlier than politicians perhaps are prepared to go. they want to push them something to happen. there's this rumor, this speculation we'll get a big package of measures. >> what that ultimately will mean you'll be central bank dax.

the solution here from the market's point of view fiscal union could take a decade? >> again the conference on friday the ecb president draghi said within a few days the proposal for a road map towards fiscal union will be submitted here. he's working with others on creating a detailed road map which will have conditions to achieve that and the idea is that in theory this could be approved by the summit on the 28th and 29th of june. but the problem is it's still unclear really whether all countries will be willing to sign up. i personally doubt it. >> one overlooked piece of this is that the path to growth rely on a financial transaction tax. ross you know how well that will go over in britain. >> that's unlikely really to do

that. you're right. >> a lot of, you know, what happens in terms of driving europe is between france and germany. and france in recent months there's been election campaigns. so that's really put a lid on any new initiatives coming out. so that will give us some sense of direction. the problem is as i say, i think it's such a big commitment going down that debt mutualizatiomutu germany is not there yet. it requires some sort of popular approval. >> if you don't get involved in this conversation, it's a fiery one. e-mail us at worldwide@cnbc.com. asian leaders are welcoming the victory of greece's pro bailout parties. we'll see if their attitudes

shift. they are pressing european counter parts to do more to solve the eu debt crisis. they say they hope for a stable greek government but recognize the debt challenges remain. australia's prime minister says asia is still vulnerable to european risk. japan's finance minister wants to see greece stick to its bailout commitment. also out of japan a more upbeat view of their economy. we have a story live from tokyo. >> reporter: the bank of japan says the country's economy has picked up. the central bank concludes domestic demand remains firm mostly due to reconstruction. view on export was upgrade in line with the moderate pick up in production. in private consumption continued to strengthen thanks to more upbeat consumer sentiment. while the greek election result has eased market jitters, the

boj cautions there's a high degree of global uncertainty. you need to pay more attention to global markets. back to you. >> all right. thank you very much. let's take a quick look on what's the agenda in asia. australia's central bank will release minutes from its june 5th meeting. and china's citic heavy industry will release its ipo road show. if successful second largest list in on the shanghai and comes at a time when ipo activity in the rest of the world is down significantly. june might be one of the first ipo free months in 40 years. >> which is amazing. worth pointing out, spanish five year spread fresh record high as well. coming up we'll talk to a guest who says there's much more to china's trade policy than meets

the eye. trade links is back after this.

>> >> if you just tuned in the rally or relief rally post-greek election result didn't last very

long. following some pretty awful bank loan losses data, the worse since watch 1994. spanish ten year yields is back to 7%. the ten year yield has gone back through 27% mark. fresh record high on the ten year yield of 7.14%. >> the ratio of nonperforming loans of spanish banks rose to the highest level in 18 years. spanish banks are trading lower. led by bbva and banco santander. we will continue to watch those. french banks were downtown news as well. >> those bank stocks leading the ibex by 2%. after a rally last week spanish

banks lower. kelly is on the way. ibex down 1.7% at the moment. as far as euro dollar is concerned we hit a 1.26 is where we stand. we got 1.2740 somewhere around there first thing this morning and all the way back down to 1.20. we close 1.2640 on friday. kelly. >> stretching my legs over here. if you want to join the conversation on "worldwide exchange" get in touch with us. e-mail us at worldwide@cnbc.com or tweet us. meanwhile critics of china's policy focused on the exchange rate but our next guest says other aspects of trade policies and in particular adjustments in value added tax have played a big role in trying to boost china's exports. joining sues professor of international trade and economic

development. thank you for joining us. what are they doing? we got this chart here that you now say over 70% of all chinese exports are affected by some sort of adjustment. this adjustment is kicking up the size. >> many chinese firms have to pay 17% bta on them and the government gives them back some of that bta. the amount they gets back depends on what the government wants. the chinese government has been ramping up those rebates in sectors where they want to see boosting exports. they've been doing soicht during the crisis now that's 70% of all their exports benefiting from this implicit subsidy. about 1.1 trillion every year. it's the largest policy. the reason they got away with doing it they chopped this measure up into 13 different

decrees and nobody has ever translated -- >> are the first person that added it up? >> the team i work with, yes. it took us a long time to put it together. >> have you started with the u.s. congress? >> sent it off to washington yesterday. >> have you had a response? >> i'm going off to see the european commission next week. >> i suggest you give at it headline that might be more of understandable to the average person. what you say is 1% increase in that rebate can boost profits at some of these chinese exports by 1% to 18%. meaning there's a lot of leverage built in. >> they are surviving just on the rebate. >> that's right. you see profit margins, if they get a larger rebate it adds substantially to their profitability and great way of encouraging chinese firms to

deflect sales from domestic markets. >> is it -- >> totally legal. it's a huge loophole. there's a small number of african countries which offer these rebates. most countries offer full rebates. china has done it very differently. >> for me, as an american i don't understand -- i don't have as much experience with it. what do european countries do? >> european countries will make you pay bta on products you buy and rebate none of it. there's no measure to be changed here. china -- >> you're giving us some ideas. >> maybe. >> there's this idea of social btas. you can use that to cut labor cost. that way you can try to encourage. >> we just lost your mic,

julian. >> it's much more export management. they are using this to dial up and dial down different sectors. in sectors where they take heat they reduce the vat rebate. >> fascinating stuff. good luck with congress. thank you as well julian. coming up more headlines and more reaction as spain seems to be taking it on the chin this morning. >> we'll ask about the federal reserve coming up. ♪ [ male announcer ] ok, so you're no marathon man. but thanks to the htc one x from at&t, with its built in beats audio, every note sounds amazingly clear. ...making it easy to get lost in the music... and, well... rio vista?!! [ male announcer ] ...lost.

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welcome back. >> these are the headlines today from around the world. >> the relief comes out of the rally. european stocks retreat despite greek give pro bailout party to remain in the euro. >> ten year yield hits a fresh euro high. bank stocks slump. >> g-20 leaders welcome the greek election outcome as they arrive in mexico but what obama administration warns not to expect any resolution to europe's wider problems from the two day talks.

if you're just joining us this morning you may be surprised how quickly the air has come out of the balloon or the relief has come out of the rally in this market. take a look at the ftse. we're now up .3%. more to do with the tone out of asian than europe. we very quickly have seen green turn inred. the ftse 100 is now just barely in the red. dax still holding its gains. paris trying to stay in the green. here in spain this will tell you a lot about what's starting to happen. ibex 35 is down 1 poif 6% giving up all of its gains and i want comes as the euro is weaker and the bond yields are heading higher. >> let's remind ourselves what happened as a result of this in athens overnight. new democracy of course got the large engineer percent share of

the vote but didn't get an overall majority. they are celebrating their party's victory. conservative leader, said it can reform. >> translator: we'll embark on a difficult path. once we get to the top of the hill a solution will emerge. a hopeful solution. >> but, of course, tsipras saying they won't go in. that was the reaction. we saw rallies turn tail. auto, technology and chemicals going up. banks rallied first thing this morning. we saw bank stocks up over 2%. banking index in spain and italy and now drag lower by the spanish banking data and the shows by current yield.

we'll show you where we are with spain. we breached it last week for the first time. we're now at 7.1, 2.1%. italian yields higher. oil point out, gilt yields there's a trade on short bonds. gilt yields is 1.62. down fresh record loss of 1.6%. all time low for two year gilt yields. euro there are well up 1.47. 1.4760. 1.2643 which is pretty much the close on euro dollar. new york time on friday. aussie dollar pulling back away from a month high getting back. big week for u.s. data. that's where we stand right now in europe. didn't last long as kelly said that relief rally. what about today in asia. we have more from singapore. >> reporter: asia reacted to the

greek election with a full long relief rally. the nikkei closed at a one month high while the kospi gained. hong kong exchanges didn't help. it dropped over 4% on concerns. it overpaid for the loan metal exchange. in australia diamond miners pushed the index higher. only asian market in the red is india. sensex is under water due to inflation fears. back to you. >> thanks for that. >> meanwhile steve is in athens with the latest for through. steve, we understand that people are very quickly realizing nothing has been resolved despite the outcome of last night's elections. what are you hearing? >> reporter: i think there's a resolution. basically we have so much more that still needs to be done.

we have the same kind of policies in charge of the government and the country over the last couple of years. we're going to get in this coalition. let's speak to the co-founder of capital and you believe this will be a shake gentlemen coalition at best and we haven't got the coalition yet. >> we had two unnecessary elections and we'll be in the same shape we were back in december when we had the government but with less seats. even if new democracy and left form a coalition less seat and work is in front of greece. we have to implement the austerity measures that were voted for plus pass the bills. the past two years have shown they can't do that. >> reporter: pessimistic scenarios i've heard so far many

greek believe there will be another election before the end the year. and tsipras can play a major factor. >> in greece when there's a political crisis the administration does not function. different in italy when you're used to political crisis it works. in greece nothing has been work. now you have to send tax forms out and start collecting taxes and implement more measures. you have to fire 15,000 civil servants. what makes this a problem. >> reporter: how does this play out? ultimately you believe there will be a much greater fracture and it wouldn't just be from the greek leaving euro, whole euro could break up. let's look at greece. four main issues. budget deficit. lack of competitiveness. we import more than we export. our economy is unreformed.

red tape bureaucrat and unsustainable debt. yes there was a bit of package that extended the maturity of the loans and interest rates went down but with 160% debt gdp that's unsustainable and nobody in their right mind will invest in greece. it leaves 22% unemployment in greece and 6%, 7% in northern europe. greek believe go to germany but we don't that have labor mobility to support in europe now that we have in the u.s. no levers to relieve the pressure. what will you do with the unemployed. >> reporter: you sound very pessimistic. what's the most optimistic scenario for greece at this point >> i think the next eurozone summit very important and some kind of pro growth package and give greece to buy more time. how significant will it be. greece has a lot of work in front of it. we'll see. >> reporter: you believe the

germans should listen, saying they need longer terms on the austerity memoranda. >> we have a situation in europe that italy is growing at 5% and germany at 0%. that's not sustainable. germany is saying does it want to go and do a euro bond or creating a banking union. if you're in new york and a beneficiary of fiscal transfers nobody cares about it. in europe we don't care about that. >> reporter: very nice to see you. thank you very much for joining us. with that i'll hand it back to ross in the studio. >> from steve in athens to steve wood. thanks so much indeed for joining us. in a way, steve, we've already moved on from greece. it's old news. we're back to worrying about spain this morning as far as the markets are concerned. >> it is news. wasn't a rally at all. talk about short-lived. half life on the market's

reaction is getting shorter and shorter. you can measure it in hours and not days or weeks. we need to move in, to you know, not only fiscal unity but we need a pan european banking resolution. you see what's happening in spain. it's very clear whatever the solution will be it has to be pan european can't be two national governments going to national banks. you got broke governments, broke banks and something needs to be done. the market will believe to bring the resources of europe to deal with europe's bank. >> the germans are still not going anywhere that smells, looks or walks like debt mutualization. >> correct. that gets us in the position we're in right now. what happened with the euro, dozen years ago when it was launched 13 years ago i never understood it because it was not be understood. they got the goodies up front and deferred and ignored the

tough parts of it and now they are trying to do it on the fly and that's creating some issues. that's changing a flat tire as the car is going 50 miles per hour down the road. they need to look towards what do they want to accomplish. ultimately i think the market will force them to make decisions that politically they would not arrive at and we're seeing that with spannish yields. seeing that with italian yields. the markets are forcing the recalcitrant of politicians. >> steve, when push comes to shove we know the fed will act, the federal reserve will do something. there's a meeting this week. people expect an action. maybe that gives us a risk on rally for the time being but doesn't resolve the underlying issues. >> whenever there's a global crisis whether the earthquake or tsunami in japan last year or these ongoing flare ups in the european chronic conditions those swap lines get opened up pretty quickly in the federal reserve to various parts of the world. the plumbing there has been

established. is this a situation that's amenable to monetary policy? to some degrees it will be. we saw the ltro with federal receive capable ever doing. i don't know we'll get another qe3 at least immediately. when you think about it from the u.s. perspective given the safe haven the u.s. has had and we've gotten a rally in bond yields, kind of like a qe3 sterilized at best. i'm not convinced we'll get a qe3 from the u.s. fed. they may try to deal with liquidity in europe because on our side of the pond, you know, the fundamentals of financials are significantly better than they are over there. i don't know there will be aa q3 but the fed will stand ready willing and able if need be. >> do you expect -- are we building up for some central coordinated big central bank action? central banks holding back

because they want the politicians to come up with something. we got a battle of wills. we saw with it india. today the indian government central bank didn't do anything. they clearly are saying it's up to. you have to sort your mess out. >> precisely. there's the inflation issues in india which are not trivial. in china, the chinese are targeting that 7.5%. they will get close to it. this year some transitioning as they go from an export oriented into a more consumer led economy. so china is switching its model, decelerating. not as aggressive as they were in 2009. i think that's pretty much a safe assessment. in the global economy the u.s. doing a hair better than okay. anthony side you got china which will target more stable, more mature growth rates. and that leaves europe to at least carry a lot more water

than it has in the past but the european politicians will have to figure out what kind of environment they want to move in. the markets will force their hand. what the germans and spannish want -- >> what do you do with investments in this environment, politically charged environment. >> if you think markets are tough to forecast try forecasting politics. u.s. fiscal cliff will be resolved in a fairly responsible way and you got what's happening in europe. time horizon is very critical. if you're shorter term, higher twist portfolio, if you're a trader things become different. as you move 12, 18 months out look at this as probably an opportunity in a globally balanced portfolio. globally diversified multistrategies which can subordinate this volatility. pick better stocks. looking in great companies in europe. well run companies in the united states. global bond portfolios looking

at great corporations. you got to beat inflation and what you're looking at in bonds in the united states will not do that. so you got to look at your discipline, strategic allocation and buy earth securities if you have a longer time horizon. >> all right. thank you very much. >> let's take a quick look on what's on the agenda in the united states. >> today we get the national association of home builders. tomorrow may housing starts. on wednesday decision due at 2:15. and thursday jobless claims, existing home sales and felly fed survey. >> there's a ton going on around the world. the relief from the greek result short-lived as european stocks retreat. >> focus back on spain. today yields jump up to 7%.

>> g-20 leaders welcome the greek election outcome as they arrive in mexico. >> still to come the microsoft rumor mill goes into overdrive. what could the tech giant be gearing up to announce later. we'll look ahead at that. ♪ [ engine turns over ] [ male announcer ] we created the luxury crossover and kept turning the page, writing the next chapter for the rx and lexus. see your lexus dealer. all in one account. it's powerful, easy to use technology for trading stocks, options, and futures. optionsxpress, the broker smart traders deserve. open an account today at optionsxpress.com.

welcome back to the program. now let's take a look at some of today's other top stories. >> the rumor mill is in overdrive as speculation mounts that smft about to laun that microsoft is about to launch its own brand tablet. would you buy a microsoft tablet? >> who is buying it? i don't know. we got to see if it will work. they have a tough mountain to work. >> floatation will be priced next week in shanghai. >> and the fact it's coming out of china is telling you. succession negotiations begin in saudi arabia as the ruling family buries its second crown prince in eight months. coming from the opec meeting its clear politics and the dynamics from mid east stability is the last thing people want to see called into question. >> looking at the next generation.

the younger generation. that may be a good thing. >> remember the crown prince in this case even if he's the next one to be named is 76 years old. >> you got to get down into the younger generation. >> exactly. >> egypts muslim brotherhood is claiming victory in the country's election. egyptian stocks were down first thing. european rally was still going on. >> you have the situation in syria where even if they can get through this period of violence not clear that country will be unified. lots of questions for investors. not just about greece and spain, all evidence otherwise to the contrary. still to come, nonperforming loans in spanish banks at a 18 year high. we ask if a bailout could foretell a bailout of the sovereign. live from madrid next. [ male announcer ] this is genco services --

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of any small business credit card. your boa! [ garth ] thor's small business earns double miles on every purchase, every day! ahh, the new fabrics, put it on my spark card. [ garth ] why settle for less? the spiked heels are working. wait! [ garth ] great businesses deserve the most rewards! [ male announcer ] the spark business card from capital one. choose unlimited rewards with double miles or 2% cash back on every purchase, every day! what's in your wallet? [ cheers and applause ] the program this morning, the relief has come out of the rally. take a look at what's happening to markets across the board. u.s. futures first are pointed lower. we have red arrows, the dow jones would be opening up 21 points on the down side. nasdaq couple points lower. >> we have bounced off the low

of european stocks. first thing this morning we're up across the board and now it's mixed. ftse down. the dax is down and ibex is down. >> take a look at bonds driving a lot of the action today. that yield on the ten year in spain 7.13%. italy at 6.05%. the bunds, they are up again but starting to turn a little bit lower because as ross mentioned we've come off sort of the worst bits but gilt still benefiting flight to saf pi. 1 poif 63%. >> euro dollar over 1.27 first thing. at 1.2740 which is pretty much where we cloensd new york trade. >> ratio of nonperforming loans at spanish banks rose to highest levels in 18 years. spanish banks are trading lower after the results and in fact banks across europe including france are trading lower.

we have more from madrid. >> reporter: unclear. changed the momentum. it was positive on the back of the greek election. the loans highest percent since 1994. 8.72% in april up from 8.37% in march. spanish banks of more than 152 billion euros in loans which is more than three months overdurks about ten times deliverables that we had in 2007 when the spanish poverty market was booming np traboom i booming. later in the week two independent auditors will release their first conclusions

about the spanish banking sector. numbers have been sensitive to the government. official announcement should come later in the week, probably on thursday. last week ecb newspaper announced banks would need between 60 and 65 billion euros which is more than the estimate of 40 billion. there's a report this morning in the newspapers here in madrid saying moody's is about to downgrade the spanish banking sector. moody's lowered its rating for the spanish economy by three notches from a 3 to ba 3 and this downgrade comes after a week where 18 banks were downgraded. this another potential negative story. so, yes, it's going to be a crucial week for the spanish banking sector and the market sent myth which was positive this morning on the back of

greek election is negative as ross was saying earlier. now the focus returns on spain. back to you. >> pretty attritional in the final round of the u.s. open round government tournament. >> i didn't catch a minute it but i did know tiger woods was doing quite well. >> until the third round. webb simpson was the clubhouse leader. shot a 200 under 68. he had to wait for graeme mcdowell. mcdowell tied for second with the first-round leader michael thompson. olympic has been, every time been what i call a no name winner. the nonguy nobody has heard of.

>> where's roy mcelroy. >> coming up on the program we'll bring the latest market reaction to greek elections. is the fed set to twist again like last summer? we'll discuss after the break.

welcome back to "worldwide exchange". >> european stocks retreat. >> greek vote. focus squarely back on spain. ten year yield hits an 18 year high. spanish lenners reach their highest levels. >> g-20 leaders welcome the greek election outcome as they arrive in mexico but the obama administration warns not to expect any resolution to europe's wider problems from the two day talks. if you're just waking up in the u.s. a reminder of what's happened in the trapding session this morning. relief has quickly turned back to concern and as a result u.s. futures are pointed lower.

the dow jones is opening lower by 20 points. s&p 500 and nasdaq pointed lower by a couple of points. this is keeg off what we're seeing across the globe as relief from the greek election outcome has translated into still growing concern about the rest of europe. ftse cnbc global 300 is up .3%. we've come off our lowest levels. take a closer look at the boards across europe for a sense of where the action is. ftse still in the red just barely. germany is holding on to its gains of .8%. camelback in paris up .3%. in spain, ibex 35 still in the red. we're down 1.15%. berkts of course, than the near 2% loss we were looking at earlier. still not the outcome people were expecting after initially seeing some relief in markets. quick look on what's going on across the board in bonds.

ten year german bund benefiting. people are buying that debt after shining away from it. ten year in spain still higher. 7.12%. italy is up two to .064%. >> the two year gilt, fresh record low this morning as well. so what are investors to do post these greek results. as we concentrate on spain some of the voices we've already heard on cnbc this morning. >> i think there's opportunity if greece does not really try to renegotiate in a big way. it's not reasonable for ireland and other countries to have taken the discipline they have and yet keep rewarding greece for their behavior. >> you think this rally will be

short-lived and so we would expect that probably the first thing that we need to see is the coalition form. >> we need to see follow up with european authorities, global central banks and the g-20 to try to sustain this rally and get a move potentially up to 1.30. if that happens we could come down very quickly. >> it's all about how the central bank will cut rates to take on more unconventional measures. markets having to go up because greece had reinstated the parliament. >> it was interesting our guests earlier speaking about india if you want to buy government debt think about that country. >> he was very pretty bullish. >> he basically said -- right

that if currency would have prevented from you a lot of benefit of buying in dan debt but maybe now that turns into a support. the yield on the spanish ten year note is climbing to new heights the head of the ocd is calling on the ecb to act to ease volatility in markets. the ecb should launch large scale intervention in eurozone debt markets and cut rates. in fact, we're going to have more on this from silva in frankfurt. he said the ecb should bring down yields in spain and italy and use ever lie single instrument tool, asset and euro. how will that go down in frankfurt? >> reporter: i thought they've done that. a trillion euros in terms of rt o's i would have called that

quite a bit of detonation. what he's saying in terms of interest rate cuts i think it will happen. mario draghi announced that and ecb on friday. it's pretty clear the ecb has put already a rate cut in the pipeline. unless it changes dramatically. sentiment indicates if it continues in that vein which is very likely then we will see a rate cut by the ecb at the next meeting probably at the next meeting with a very slim chance they will push it further down the road. very likely already in july. as to bond purchases in the bond

market, the ecb has got sort of what they get on their agenda is we will step into the bond market with bond purchase when we need to when the market conditions are disorally or are risking to be disorally or threatening to be disorderly. they will not and cannot come in to the market by saying, you know what? we want to bring spanish yields down to 6%. the moment the market knows that this is out there and it's pretty quick indication that that kind of thing happens it's like throwing money into the ocean, it's like a waste of time, the ecb is not interested in a certain level of yields, a certain level of the foreign exchange rate but only interested in functioning markets and that's when they step in. >> appreciate that. back with more. >> the leader said he'll try to

change the bailout arrangements. and in almost immediate response a german government spokesman said now is not the time to give discounts greece. so good luck mr. antonis samaras. >> joe, given all the back and forth even how quickly the mood seems to be shifting this morning how positioning for the day? >> well it looks like we're going to get probably a bit more -- put it this way. the euro still will have its bias to the upside. very weak bias. made a quick move up to 7.2730. came back to 26. we won't get any sustained movement out of this. i thought we might get more of a rally in some of the equities and in the currency but we did not. when you compare the fact that the greek did not basically drive the car off the cliff at least not today, with spanish

yields now above 7%, there is no reason to rally. nothing has changed. greek election was never going to solve anything. all it was going to do is perhaps create more havoc which it did not do but it solved nothing. >> joe, i have to wonder at this point whether that puts on its back of global central banks to act. india chose not to. the ecb, the fed later this week is this. >> for the fed i think it's very close to 50-50 on whether they are going to do anything. my own opinion is they will not. the europeans i don't think will do anything right here. i don't think they will come back into the bond markets or going to be active in supporting and providing liquidity. they will provide liquidity for the banks. that was one of the big things in the greek situation. if the greek had voted there was a vote to leave or vote to seriously renegotiate on the platform of syriza.

ecb would be hesitant to back the greek banks. you don't have that situation now. but you still have the greek saying they want to renegotiate. this course will play out over the other countries which already signed bailout agreements and all of these things are against what the ecb has said they are going to do. so i think you're going to get more pressure still on the countries that have signed or will sign bailouts. >> specifically, if you're cautious, i imagine i don't like commodities or you do like gold given more policy action. what do you like? >> asset classes, i think the dollar is still going to do very well. if, course, the fed does release another qe program in american equities will do well. gold has been a bit odd late lui. it has not playedd a strong saf haven role as it has in the past. i think if you've gotten a greek rejection you would see much stronger gold.

commodities i don't think will be play because you're looking all around the world at slowing indicators, slowing economies. in india, china, on countries that we're counting to drive the world economy moving forward. they are sliding backwards. i would stay with the safe haven across the board. >> joerks stick around because it's worth reminding ourselves what's going on. tomorrow g-20 leaders are meeting in mexico. on wednesday the bank of england releases minutes from its june meeting. first auction special liquidity scheme at 5:00 p.m. eastern. thursday we get pmi from china and europe. we gate euro group meeting in

luxemburg. the world repairing for this heads of state meeting next week. >> data equivalent of the euro 2012. so much going on. in the u.s. the fed holds a two day policy meeting this week with a decision due wednesday at 2:15. central bank may ease policy. it's set to expire at the end. month. joe, give jones those expectations and some of the concern that you just expressed, you know, just have to wonder whether investors here aren't seeing through all the central bank liquidity operations to the fundamental europe problem that doesn't look like it will be solved any time soon. >> you know, i think the only think that would get markets moving in a positive direction right now would be if the fed does come in with a qe policy of some type. it doesn't matter very much what they do but if they act. the european situation is not going to change. this has been going on for 2 1/2 years.

the central bank in europe will not do anything. they came in surprisingly tomorrow and cut rates it would have very little effect. have a shock effect but long term it will do nothing to change the economic situation in europe or the political situation that is really dependent on it. none of these things are going to look or investors can look for, for owing to support a rally. i think that's what the problem is. only the fed really would have enough effect. >> what do we do with spain, joe? and then italy. clearly the folks this morning as we almost forgot about greece, focus on spain's problems. >> right. spain is a problem which, you know, it's always been my view that for the duration of this crisis, many people have seen many times that european leaders are not taking the right action, they are not doing enough, they are not focusing on it, they are too timid. always been my view that the reason this crisis drags on is

because there really is no solution given the desires to keep the eurozone together and the economic realities in the various countries and you might say the cultural realities well. spain will require a bailout. they were trying to avoid, spain wanted to avoid a greece sovereign debt which is why they wanted the money to go directly to the banks. it didn't go the banks. i want went to spain. spain requires a bailout. market are essentially based on confidence. the idea that they will get their money back and things are proceeding along a normal path, a normal financial trajectory. markets have essentially lost confidence right down the line. look at the equities up there earlier, germany and france are up and everybody else is now down. that tells you what's going on.

>> all right. talking about how spain potentially will be the next in line for a bailout, the country itself at this point. >> as opposed to the banks. madrid returned to the eurozone, yield are up. it's difficult, what can you do to keep spain afloat. we'll have more analysis. 

you're watching "worldwide exchange". these are your headlines. the relief from the greek vote result is short-lived as european stocks retreat. the focus turns once again to spain as yields jump above 7% and credit default swaps reach a credit high. >> the ratio of nonperforming loans at spanish banks has reached its highest level in 18 years. spanish banks are trading lower after the results. french banks too, of course, across region we're seeing pressure on those institutions. now if you take a look, we're off the lowest levels of the

morning. bbva down 1.3%, less than 1%. spanish yields still high, 7.1213% on the ten year. with more now joining us is stefan from madrid. stefan, explain why we're not seeing more relief i suppose here in spain despite the outcome of last night's election. the opera's view this morning is that the greek election would give spain some breathing space because it would reinforce credibility of the eurozone, but quickly the focus returned to, on the spanish economy with more concerns about the financial health of the spanish banking union. it reached its highest level since 1994, 8.72% up from march. spanish banks more than 152 bill euros in loans which repayments now are more than three months reduced.

so this is really a high level and raising concerns about how much money the banks will need, how much money will be necessary, we'll have the answer later in the week. there's a bailout plan for the spanish banks. the banks will need between 60 and 65 billion euros. the numbers have been announced to the spanish prime minister. but for the time being the market sentiment remains negative. most of the banks are trading lower here main drid. this is the worst decliner. there's also a report in the newspaper today saying that moody's is about to downgrade the spanish banking sector on the back of its downgrade of the spanish economy last week. moody's lowered its rating to baa 3. fitch downgraded 18 spanish

banks. we're expecting a similar decision from moody's. definitely another crucial week for the spanish banking sector. a lot of question marks. the first answers with this capital need for the spanish banking sector. really the market is focused on this and bad loan ratio which again was at the highest level in 18 months. back to you. >> all right. >> all we're going to do this week on thursday is stuff more spanish banks with more spanish debt. that will work beautifully. german government has come out with quite a few moments. they say there's no schedules for pay outs for greece. it will depend on the troika report. they are wait forge that assessment to come first. say greece should stick to its commitments despite that antonis samaras said he wants to renegotiate the bailout.

german government said now is not the time to give greece any discounts. >> german government wants to reiterate that greece has to stick to the terms of the agreement. >> got to love the politics. still to come on this show we'll talk to a guest who says the troika is legally unable to force greece out of the eu. we'll be right back. we we we "worldwide exchange" >

. no relief rally from greece. stocks a little bit mixed. dax up three quarters. bond yields in spain well above 7% as the ibex is down a percent. >> take a look at u.s. futures. still in red although the nasdaq trying to fight into the green. we're off the worse levels of the morning but still weaker than where people expected.

joining us now is larry mcdonald senior director of credit sales and trading at newedge and larry before the break we mention this idea that the eu can't kick greece out. the question is do they even want to? >> well, you know, that's the thing. people don't understand there's so much complexity about trying to get a country, force a country out. but i think the markets really focused on spain because it remindses me so much about lehman and i talk about this in my book. when the market distrusts the banking infrastructure that's when you get this type of push. it's a tug-of-war. think about this. the been year bonds in spain have gone from 1.08 to about 91 1/2 now and the big banks in spain the three big ones have $200 billion worth of those bonds on their balance sheets. the market is focused on that

systemic risk. >> given this solution here is perhaps a fiscal union that could be years and years away if ever, what's it going to take in the near term to get risk back on globally, 1 trillion, 2 trillion, 5? >> i think if the eu summit on the 29th you'll have to have a solid framework agreement around the esm banking license, loaning money directly to banks and deposit guarantee scheme. that would be a real potential bazooka and then we got the fed this week with potential more qe. so if they time all of that, you know, you might have something but that's why i want to be long volatility here because in the meantime you'll have a lot of negotiations behind the saerngs lot of ugly headlines and that's why you want to be long vol. >> you talked about market rip. the market rip has to come from coordinated action. are you still confident we'll get something that's big enough?

>> i think around the 29th we'll get something. i really do. in the meantime i see market weakness. i think the 29th, i think the 7% is just unsustainable. you just can't have spanish yields at 7% for that long. they have to sell 30 billion more bonds between now and the end the year and at 7%, heading north that's just too big of a problem. >> what's your best trade idea right now? >> just long volatility. you can get long volatility by being, you know, short indexes, be long futures on the vix, call spread on the vix. >> long vix, there's your headline for the day. >> thanks for that. that's it for today's program. "squawk box" is up next.

good morning. pro bailout parties in greece claim a weekend victory. why are traders still worried today? world leaders are gathering in mexico for a g-20 summit. as you expect euro is at the top of the agenda. in corporate news analysts are buzzing whether microsoft will announce its own tablet today. it's monday, june 18, 2012. after a red sweep of the mets, "squawk box" begins right now. good monday morning, everybody. welcome to "squawk box" here on cnbc. i'm becky quick along with joe kernen and andrew ross sorkin. those fears of an imminent greek exit from the euro are