Germany could be the new Greece, warns UBS economist

Paul Donovan, global economist at UBS, has warned that continued recession across Europe could put in jeopardy Germany’s status as a supplier of safe haven government bonds.

The warning came during a briefing in Norway, reports local newpaper Dagens Næringsliv.

Donovan also discussed the consequences should the single currency collapse under the pressure of a wave of panic runs on banks. History showed that when currencies had collapsed in the past, it was often followed by dictatorships taking over, he said.

Another worst case development could be the return of hyperinflation in Germany, Donovan warned. This could  be sparked by a euro collapse that would lead to Germans repatriating their assets, in the belief that Germany is the strongest economy in the eurozone. However, that would lead to a significant increase in cash, in turn sparking inflation.

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