The euro zone is currently in chaos with the euro no longer being functional and order will only be restored by giving struggling member states their currency back, according to Matthew Lynn founder of Strategy Economics.
“The euro is already dead. It no longer meets most of the criteria of a working form of money,” he said in a research note published Wednesday.
Politicians in the euro zone have begun a round of shuttle diplomacy this week in an attempt to find a solution to the crisis. Greek Prime Minister Antonis Samaras is holding talks with euro zone chief Jean-Claude Juncker on Wednesday to try and gain Greece more timeto deliver the terms agreed on their 130 billion euro ($162 billion) bailout.
Lynn believes that any progress made by European politicians is irrelevant as the euro has already turned into a “zombie currency”.
He says countries can no longer use the single currency for imports meaning it is effectively ceasing to act like money.
“There are already reports that oil traders don't want to supply clients in Greece,” Lynn said.
“Why not? Because in six months’ time when payment falls due they may not get paid in the currency the deal was struck in – but one worth much less.”
Lynn says that wealthy European investors are fleeing the euro to safe-havens such as the London property market.
He warns that the euro is de-monetizing because trade has stopped flowing, investment has been postponed, output has declined and unemployment has begun to rise.
He suggests that peripheral member states with high bond yields should be allowed to leave the euro and predicts that their recovery would be swift if they were allowed to do so.
“Once countries such as Italy and Spain get their currencies back, there will be a very rapid improvement,” he says.
“Having any kind of functioning currency, even if it is one that has hugely depreciated in value, and doesn't have much respect in the currency markets, is a lot better than having no currency at all.”
Once weaker members have exited the euro zone, Lynn believes their equity markets will improve. He says the real question should be when investors should start buying European stocks again.
Disclosures:
Matthew Lynn, and Strategy Economics, has no position on the euro.