The Future Reserve Currency Is the Euro: Strategist

CNBC (Link) - Constance Faivre d�Arcier (January 14, 2010)

The euro will become the world�s favorite reserve currency because Europe has a better growth strategy than the US, David Roche, global strategist at Independent Strategy told CNBC.

�We�ll actually produce a much stronger fiscal balance, a much better debt-to-GDP ratio within the eurozone,� Roche said.

The German economy has recorded its fastest post-war contraction, at 5 percent in 2009, with exports falling by 14.7 percent, alongside investment. But this, paradoxically, brings opportunities for private investors, according to Roche.

�It also means the government will have to shrink spending because you can�t increase taxes to balance the budget in Europe, otherwise there won�t be an economy,� Roche said.

�They�re so heavily taxed anyway. So you have to shrink spending, which opens up a whole area of the economy for entrepreneurs to enter the act.�
But concerns about highly indebted countries such as Portugal, Ireland and Greece put a drag on the eurozone and investors wonder if Europe will recover as fast as the rest of the world.

A German Story

�The Germans have become more assertive about the price which has to be paid and which they have paid heavily for establishing the euro and the eurozone and they are not prepared to put up with this sort of shenanigans and straight outright mendacity which they have had to endure from the likes of Greece,� Roche warned.

�So what they are doing is that they are hanging Greece out to dry. (...) It is actually to show that within the eurozone, errant nations will be told how to behave,� says David Roche.

At 12.7 percent of GDP, Greece�s deficit is far above the eurozone ceiling of 3 percent. Greece is also burdened with debt amounting to 113 percent of GDP - more than double the eurozone limit of 60 percent.

The European Commission has already voiced its unwillingness to bail out the country, leaving the International Monetary Fund as the last resort for a potential lifeline. However, the country�s Prime Minister said Wednesday that Greece will not quit the euro zone, nor will it resort to the IMF.

Next week, the new Greek budget is to be presented to the Greek Parliament, a statement which will be closely watched by the markets.

�The Germans are saying to everyone else: where is your exit strategy? You�re going to have to have one, because we�re going back to fiscal orthodoxy,� said Roche.

�I believe that�s the right strategy to get growth going. I don�t think spending money you don�t have is the right strategy. So the American strategy is totally wrong. And I think the Europeans will be right. I think it (the recovery) will be governed by Germany in a very nice democratic way,� he added.