Germany faces highest inflation in Europe in next year, warns Odey

Eminent UK hedge fund manager Crispin Odey, founder of Odey Asset Management in 1991, has warned Germany faces the highest inflation rates of all European economies in the next year.

Speaking at an annual conference hosted by investment funds rating agency Morningstar, Odey highlighted the risks levelled at the economy that is usually seen as the most stable and successful in Europe.

“Germany will have the highest inflation rates in Europe in the next year,” he said.

But the upside of that effect would be a balancing out of some of the divergences currently seen in the region, he argued.

“With Germany’s higher inflation rates, some of the pressures in Europe will disappear.”

On the same day ratings agency Moody’s announced it was conducting a reassessment of support underlining Germany’s public sector banks, Odey said the failure of Landesbanken to reform endangered its economy overall.

“The interesting thing with the German banking system is that it’s completely bust,” he said.

He compared German banks with those in the US and UK, where he said it pays for taxpayers to own banks because they are now recovering, with greater levels of core capital than before the crisis, typically 10%.

“In Germany, the Landesbanks run the system. They don’t believe they need capital.”

“That is why you see large banks like Commerzbank and Deutsche Bank lending far afield, because there’s no margin on domestic lending,” he said.

Moody’s warned of the systemic importance of the Landesbanken and how that could impact on the rest of Germany’s banking sector.

“At present, the Landesbanken are widely considered systemically important 
and Moody’s considers that a bankruptcy in this sub-sector could cause 
collateral damage to other members,” it said in a statement.

Negative outlooks and downgrades could hit a number of institutions following the announcement by the ratings agency, including DekaBank Deutsche Girozentrale, Deutsche Hypothekenbank, and HSH Nordbank AG.

The review fits in with a wider reassessment of Europe’s banking landscape, due to concerns over the longer-term dependency of financial institutions on taxpayer funding in a tightening regulatory framework. It has already triggered downgrades elsewhere, including on German banks.

Odey meanwhile predicted another ECB rate rise was likely, due to the willingness of European governments to prop up their banks.

“Europe is still likely to put up rates over next six months, because they would rather save their banking systems than worry about inflation,” he said.


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