The Eurozone crisis will end up with Germany quitting the common currency says economic commentator Philippa Malmgren of Principalis.
‘My view is that it is Germany that will have to pull out of the euro,‘ said Malmgren, speaking at Threadneedle Investments’ European conference in London on Thursday. ‘The decision has already been made by the government that leaving the euro is a possibility.’
‘I think they have already got the printing machines going and are bringing out the old deutschmarks they have left over from when the euro was introduced.’
A former economic advisor to George W. Bush during his presidential campaign, Malmgren recognises a German exit would be a radical move and would mean a sudden rise in its export prices. But she believes Germany’s industries are in a strong enough position to deal with high prices in the near future.
Leaving a currency union has happened many times before, she added, pointing to a report published by the Monetary Authority of Singapore in 2007 which analysed countries’ departures from monetary unions.
The report entitled 'Checking out: Exits from Currency Unions' analysed close to 70 distinct countries that left a currency union. It found that leavers tend to be larger, richer and more democratic and also tend to have higher inflation.
However, the report states, there is ‘little macroeconomic volatility around the time of currency union dissolutions, and only a poor linkage between monetary and political independence. Indeed, aggregate macroeconomic features of the economy do a poor job in predicting currency union exits.’
Malmgren, who is an adviser to some of the world’s leading asset managers and a co-founder of Principalis Asset Management, believes we are going to see a profound change in the fabric of society as increasing numbers of countries will default on their debt.
‘The focus of the markets right now are on all the other countries in the eurozone. Greece is done. We need to start looking at the others. Belgium will not have to assets to bail itself out of its debt problem.’
‘The question on the market’s mind is the multiple defaults in Western Europe. It is important to begin preparing the public to deal with this situation.’