Euro zone policymakers have a small window of opportunity to save the disintegrating bloc and an orderly Greece exit could save the currency union from total collapse, Gina Sanchez, director of equity and asset allocation strategy at Roubini Global Economics, told CNBC Wednesday.
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“We’re reaching an important inflection point, with policymakers very close to running out of real credible solutions," Sanchez told “Worldwide Exchange.”
"In the next year, 2013-2014 could be a pivotal year when policymakers run out of policy options or can’t get it together, and the problems start to really overwhelm them.” She added that she expected Greece to leave the bloc by early 2013 after the current government fails to quell the growing dissent amongst the Greek population.
“We’ll probably see the government that has formed break down and collapse due to the social unrest that is likely to develop from the continued austerity.
That is going to make the Spain and Italy issue come to the fore sooner that it would have,” she added.
Sanchez said that within six months there would be another element and an amicable divorce was the best way forward for the euro zone.
It was widely reported on Tuesday that German Chancellor Angela Merkel offered her strongest rebuke of common euro zone Eurobonds by insisting that they would not be introduced “as long as I live.” The rebuke came as Egan-Jones, the credit ratings agency, downgraded Germany to "A+" with a negative outlook from "AA-," because of the impact of the euro zone debt crisis, in particular Greece.
The agency said it was unlikely Germany would ever be repaid the full amount it had lent.
Fight Over Eurobonds
Joint Eurobonds remain one of the most contentious issues for the euro zone and have caused deep divisions between Germany and much of the rest of the bloc.
European Council President Herman Van Rompuy outlined his vision of Europe, which included closer fiscal ties and the use of Eurobonds.
EU leaders and policymakers meet later this week, but after numerous meetings and with the euro zone debt crisis going on its third year, expectations of any meaningful measures to resolve the crisis decisively are muted.
Sanchez added that while Germany still carried a great deal of clout due to its economic strength, German Chancellor Angela Merkel was becoming “more isolated.”
“It is really going to make it difficult for her to stronghold something; there are measures you could do but they may be too little,“ she said. “You need to figure out how to create a fiscal union either by stealth or outwardly, probably a stealth manoeuvre is what ends up happening.”
Marc Ostwald, strategist at Monument Securities, told CNBC that with the costs rising and the pressure building on Germany there could be a German exit of the euro.
“The Germans could have the discussion that no-one wants, which is where they say noone has paid any attention to the GSP [Growth and Stability Pact] and if no one is willing to do that then, we are going to get to a point where Germany says actually even at 500 or 750 billion euros [firewall fund] it might be better for us to leave,” he said.
Sanchez dismissed this idea, arguing that there was “no way” that Germany would leave.
“The costs are high to stay in but the costs would be enormous if they were to leave. It would kill German exports; they have benefitted from being in a weaker currency union and they have to pay the bill,” she said.