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Benedicte Gravrand, Opalesque London:

Dietmar Schmitt, founder of a London-based boutique called SAM Capital Partners, which runs a European equity L/S hedge fund, is bullish on the European equity market right now.

Although, he wasn't feeling that way last week - when all was up in the air in Europe thanks to the uncertainty of the Greece situation.

"With all the rumours we had around the last 2 or 3 days, markets were holding quite well," Schmitt told Opalesque yesterday. "They're down only 3 to 4% - depending on the market you look at - except for Spain obviously which got murdered." Italy and Portugal too, to a certain extent.

The root of the current European problems, according to Schmitt, lies in the state finances. The banks are now "fairly" well capitalized compared to a year or two ago, so the problem is not really in their camp.

Right now, the focus is on the PIGS states (Portugal, Ireland, Greece, Spain). Indeed, European markets went down in the last few days even on news of the Greek bailout fund, as investors are concerned about a contagion effect reaching those fragile economies. Portuguese and Spanish bonds were negatively affected for example.

Germany's problem Although it is not really Germany's problem, Schmitt points out, it is, in fact Germany's problem. Everybody in Europe will suffer but Germany will share the biggest part of the bailout's burden because of the country's size and its GDP.

Ge......................

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