Ex-Bush Adviser: Germany Prints Old Currency in Case Euro Ditched ……….

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Tuesday, 04 Oct 2011 01:06 PM

By Michael Kling

Germany is printing deutsche marks in preparation to leave the euro common currency, says Philippa Malmgren, a former economics adviser to George W. Bush.”My view is that it is Germany that will have to pull out of the euro,” Malmgren said at an investors’ conference in London recently, according to the Citywire news website.

“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 deutsche marks they have left over from when the euro was introduced.”

Malmgren, co-founder of Principalis Asset Management, acknowledged that leaving the euro would be a radical move that would cause Germany’s export prices to jump, but said German industries are strong enough to handle price increases, Citywire reported.

Other countries have let currency unions before, Malmgren said, citing the report, “Checking Out: Exits from Currency Unions.”

Countries leaving currency unions are usually larger, wealthier, and more democratic and typically have higher inflation than their partners, according to the report, published by the Monetary Authority of Singapore.

Malmgren predicts that more eurozone countries will default, causing deep changes in society, Citywire reported. “It is important to begin preparing the public to deal with this situation.”

Malmgren isn’t the only one saying the euro is in trouble.

“The euro is nearing its ugly end,” said Stefan Homburg, head of Germany’s Institute for Public Finance, according to The Telegraph. “A collapse of monetary union now appears unavoidable.”

The Bundestag, Germany’s legislature, approved more bailout funds for Greece but the growing rescue fund is becoming increasingly unpopular in Germany. Many economists and investment professionals say the fund is not large enough to save Greece and other eurozone countries from defaulting.

Meanwhile, Ireland’s central bank reportedly is printing Ireland’s old currency in case that country leaves the eurozone. At least that’s the rumor circulating in Dublin, notes Alan McQuaid, chief economist at Bloxham stockbrokers in that city.

McQuaid, writing a guest commentary for The Guardian, says he’s not sure if the rumor is true. But he does hope Ireland has contingency plans in case the euro disintegrates.
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Eurozone Break-Up

http://globalfire.tv

http://telegraph.co.uk/finance/financetopics/financialcrisis/8215358/Pimco-says-untenable-policies-will-lead-to-eurozone-break-up.html
20 Dec 2010

Greece, Ireland and Portugal cannot get back on their feet without either their own currency

Pimco says ‘untenable’ policies will lead to eurozone break-up

Pimco, the world’s largest bond fund, has called on Greece, Ireland and Portugal to step outside the eurozone temporarily and restructure their debts unless the currency bloc agrees to a radical change of course.

By Ambrose Evans-Pritchard

Andrew Bosomworth, head of Pimco’s portfolio management in Europe, said current policies are untenable in the absence of fiscal union and will lead to a break-up of the euro.

“Greece, Ireland and Portugal cannot get back on their feet without either their own currency or large transfer payments,” he told German newspaper Die Welt.

He said these countries could rejoin EMU “after an appropriate debt restructuring”, adding that devaluation would let them export their way back to health.

Mr Bosomworth said EU leaders were too quick to congratulate themselves on saving the euro last week with a deal for a permanent bail-out fund from 2013.

“The euro crisis is not over by a long shot. Market tensions will continue into 2011. The mechanism comes far too late,” he said.

The bond fund argues that the EU strategy of forcing heavily indebted countries to undergo draconian fiscal austerity without offsetting stimulus is unworkable.

The austerity policies are stifling the growth needed to stabilise debt levels.

“Can countries inside a fixed exchange-rate system like the euro grow and tighten budget policy at the same time? I don’t think so. It didn’t work in Argentina,” Mr Bosomworth said.

Pimco also gave warning that the bond vigilantes have lost faith in the policy and are trying to liquidate their holdings of peripheral EMU faster than the European Central Bank (ECB) can buy the debt, causing a relentless rise in yields, and a vicious circle.

Despite this, the ECB said on Monday that it had cut purchases of government debt last week, settling €603m (£509m), down from €2.68bn a week earlier. The withering comments from the world’s top investor in EMU sovereign debt is a blow for Portugal and Spain. Both nations are hoping bond spreads will start to narrow before they face a funding crunch in the first quarter of next year.

Jacques Cailloux, chief Europe economist at RBS, agreed that last week’s European summit had failed to grasp the nettle.

“None of the policy responses put in place in Europe since the start of the crisis provides a credible backstop to prevent further contagion,” Mr Cailloux said.

“We remain most concerned about an escalation of the sovereign debt crisis hitting larger economies in the euro area. Markets continue to underestimate the potential disruption via financial transmission channels that such an event could trigger.”

Meanwhile, Spain must cut harder and deeper to rein in its finances, the OECD has warned, calling for an overhaul of its labour laws and employment practices. Madrid is already in the midst of harsh austerity measures, but the influential Paris-based think-tank said more must be done. The Spanish economy should be able to shrink its budget deficit from 11pc of GDP last year to the 6pc target next year, the OECD believes.

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