World Business

Rogers says bailout is 'nail in the euro's coffin'

By Shiyin Chen and Haslinda Amin (China Daily)
Updated: 2010-05-13 10:32

SINGAPORE - Investor Jim Rogers said Europe's bailout of indebted nations to overcome the sovereign-debt crisis is just "another nail in the coffin" for the euro as higher spending increases the region's debt.

The 16-nation currency weakened for a second day against the dollar after rallying as much as 2.7 percent on May 10, when the governments of the 16 euro nations agreed to make loans of as much as 750 billion euros ($962 billion) available to countries under attack from speculators and the European Central Bank pledged to intervene in government securities markets.

"I was stunned," said Rogers, chairman of Rogers Holdings. "This means that they've given up on the euro, they don't particularly care if they have a sound currency, you have all these countries spending money they don't have and it's now going to continue."

New York University professor Nouriel Roubini said Greece and other "laggards" in the euro area may be forced to abandon the common currency to spur their economies. The euro will remain the currency for a smaller number of countries that have "stronger fiscal and economic fundamentals", he said.

Greece's budget deficit of 13.6 percent of gross domestic product is the second-highest in the euro zone after Ireland's 14.3 percent. As part of the bailout plan, Spain and Portugal also pledged deeper deficit reductions than previously planned.

Economic growth in the nations that share the euro will lag behind the US by almost 1.5 percentage points next year, Bloomberg surveys of economists show.

All paper currencies are being "debased", with the euro currency union at risk of being "dissolved", Rogers said, adding that he continues to own the dollar, the Swiss franc, the Japanese yen and the euro.

"It's a political currency and nobody is minding the economics behind the necessities to have a strong currency," Rogers said.

"I'm afraid it's going to dissolve. They're throwing more money at the problem and it's going to make things worse down the road."

Investors should instead buy precious metals including gold or currencies of countries that have large natural resources, Rogers said. Among other asset classes, he favors agricultural commodities as the best bet for the next decade as well as silver because prices haven't rallied.

Rogers started short-selling emerging markets in the past two weeks after last year's rally, he said. Still, the investor will seek to add to his Chinese holdings if shares fall further.

Bloomberg News