What happens if the euro zone breaks up. In an interview on KingWorldNews, Felix Zulauf, of Zulauf Asset Management talks about the reprecussions of such a move.

“I expect next year one country, probably three, will exit the euro.  That will make 2012 very interesting because there are no rules on how to exit the euro.  A country exiting the euro means the next day, when they exit, their banking system is bust.  That means the banking system has to be immediately nationalized in a new currency.

 They introduce a new currency, they nationalize the banking system, and then, of course, the government is also bust.  Then the government will default.  That’s what you have to expect next year.  I think Greece will do so and Portugal and Ireland are candidates also.

 Then it will depend on how that crisis is managed as to whether the crisis can be turned around and terminated or whether it will intensify and drag on into 2013 and force Italy and Spain out of the Eurozone as well.  (This will have the effect of) creating turmoil in the financial markets and weakening the European and most likely the world economy (even) further….

“…Let’s go back to what I said, one country exiting (the euro) and then you have chaos.  Obviously that country will default.  Not only the government, but also the private sector will default to a large extent.  That means the banks in the remaining European countries will have to take huge losses, much more losses than the recent stress tests used.

That would mean you have to expect more nationalization of banks in several of the European countries to stabilize the system.  This means the governments that have to nationalize banks, they don’t have the money.  They have to go into debt and that means the debt levels go even higher.

So you can expect the bond markets will not be very quiet in their trading next year.  It will be a very wild situation that I see coming for next year.”

Advertisements