Jens Ehrhardt, founder of Germany's largest independent asset manager, has called the euro an "idiotic idea", and said Greece would be better off out of it. But, he added, if Eurozone politicians want to save the bloc, they must print more money, and buy more bonds.
Jens Ehrhardt, founder of Germany’s largest independent asset manager, has called the euro an “idiotic idea”, and said Greece would be better off out of it. But, he added, if Eurozone politicians want to save the bloc, they must print more money, and buy more bonds.
The statement from the founder of €10bn Munich-based manager DJE Kapital AG is controversial, not least because it comes from a country historically very nervous about inflation, which quantitative easing could cause.
Ehrhardt also counters the stated view of his country’s chancellor Angela Merkel, by suggesting a break-up of the euro would help the most indebted countries, and relieve their financiers, chiefly Germany.
Speaking before Greece’s second general election in mid-June – which many feel is a quasi referendum on Greece’s euro membership – Ehrhardt said in the long term “it would be better to have Greece out, especially for the Greek people, because you cannot give Greek people work if Greece is in the euro.”
He openly admits French banks, which have loaned about €30bn to Greek’s private sector, will not like this. “But the euro is a ‘lose-lose’ for [Greece]. Before, it was an opportunity for people to raise debt at lower interest rates – and it certainly helped countries like Spain because if they had pre-euro rates they could not have behaved that way.
“Even if it were difficult to end this experiment [the euro], it would be a better thing. For as long as peripheral Eurozone countries have the euro, they will face headwinds for their exports, and the banks cannot give them new loans. First they had access to huge amounts [of borrowing] but this led to huge amounts of debt, and the higher they pushed it.”
Ehrhardt says Germany is now effectively responsible for “closing the gap between reality and what people [in Europe’s periphery] want, but the Germans are not rich enough to do that.
“The euro was a political idea by [former French President François] Mitterand to keep the Germans in check after re-unification and [former German chancellor Helmut] Kohl could not say ‘no’. The smaller countries joined it speculating on subsidies, such as from Germany, but it is not sustainable.”
If politicians are determined to keep the trading bloc unified, and its currency, however, Ehrhardt says: “The only way to save the euro is to print money at the ECB, and buy bonds. Look at how high the state debt is in France, in Portugal, in Spain and also in Germany – that is the only way to save the euro.”
Ehrhardt says some inflation could arise from more money printing, “but not as quickly as people think. Germans fear high inflation far too much in the short run [and] many people rush out of equities and into real estate, because they fear authorities will print far too much money and inflation will go up. But real assets are not a one-way bet. Look at gold for the last one year: you would not have lost money, but nor would you have made money.”
The bloc’s periphery must reform itself, he says, echoing statements about Greek tax collection made in late May by IMF head Christine Lagarde. On reform he is also in agreement with public pronouncements by Merkel.
Ehrhardt manages €2bn in a range of single fund and fund of funds mandates. Some are focused on Europe and Germany – and it is for these he chiefly made his name. Others include the €64m Gamax Funds – Maxi-Fonds Asien International, which is up 5.7% this year to 30 April, with a Sharpe ratio of 1.4. It had made back some of the 17.7% it fell last year. In 2009 and 2010 it made 48.9% and 18.5% respectively, but 2008 was arguably the stand-out year, when it fell only 31.4% while global shares lost 44% of their value.
To read more of Ehrhardt’s views see the upcoming edition of Investment Europe.