Edinburgh, Scotland: With a $1 trillion (Rs45 trillion) rescue package from the International Monetary Fund (IMF) and the European Union, Europe may have managed to dodge a crisis, but its problems are not yet over, said Russell Napier, strategist at CLSA Asia-Pacific Markets, in an interview. Edited excerpts:

Crisis concern: Russell Napier, strategist, CLSA.

There are concerns about how the European package will be funded.

I don’t think this programme that has been put together in Europe means it’s over. I think, taking the biggest picture, what it is really all about is the face-off between the governments of Europe and the central bank of Europe, which is holding back and providing monetary relief for the economies of Europe in return for (a) smaller fiscal deficit.

The bank is run by economists who believe that the governments can achieve those goals, but unfortunately there is lot of evidence that those goals are probably unachievable... The best piece of evidence...is the situation in Spain where we have 20% unemployment, very high vacancies in residential property and yet we have 2% inflation.

So the plan of the central bank is to get some parts of Europe to deflate, that they become competitive to a single exchange rate. I think it’s politically and socially impossible. That means we will have (a) further crisis with social and political problems in Europe. Most importantly for investors, it does also mean that the central bank isn’t fully committed yet to providing growth, a little bit of inflation in Europe... So there is a solution for this, it means more growth and more inflation but that has to be provided by the central bank...

Equity markets saw a sharp fall last week, which some analysts compared with the aftermath of the Lehman Brothers’ bankruptcy.

If it (crisis) was to unfold (last week) that would be as big as Lehman’s. However, the events of the weekend have made it clear to everybody that it is very unlikely that crisis will unfold and in terms of direct government action; obviously we are going to be buying government bonds and holding in the spreads. I think also people at the central bank are beginning to take a few steps down the path towards providing monetary relief.

You earlier talked about buying India and selling China in a long-term call. Do you still hold that view?

India’s banking system can continue to evolve into a truly commercial banking system with a variety of support, doing what true commercial banking systems can do and should do and do that without a crisis and I don’t believe that China can.

So the call last time was a long-term call and I haven’t changed my mind on that at all. India can make a much smoother progress to a world where most growth is domestic consumer-driven rather than export-driven and China can’t.