Economist and money manager Gary Shilling says the euro is likely to drop about 27 percent from current levels.
“I think the currency could go back to 1-to-1 versus the dollar,” he says.
“The problem is that Europe has a one-size-fits-all monetary policy but very different fiscal statuses in individual countries. Greece is the poster boy, but you have the rest of the PIIGS (Portugal, Ireland, Italy, Greece and Spain) right behind it,” he told Bloomberg.
Greece, for example, has a budget deficit totaling 12.7 percent of GDP.
“It’s really an insoluble problem because these economies are very different,” Shilling said. “They’re much weaker; they need to issue all these sovereign debts. And ratings agencies are downgrading them.”
Whether the euro zone will survive as one is an open question, he maintains.
That doesn’t make Shilling a bull on the U.S. economy. “It isn’t so much that we’re doing anything right, but that Europe has serious problems,” Shilling said.
While the economy has benefited from a bounce in inventories, “The question is does this have legs?” he said.
“What we’re missing is a bounce in housing. There’s way too much in the way of inventory there.”
Others see danger ahead for the euro zone too.
“The risk of contagion is a real one,” Scott Thiel, head of European fixed income at BlackRock, told The New York Times.
“Investor sentiment is now focused on countries like Spain and Portugal, where fundamentals are weakest.”
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