If the Euro collapses, Malaysia will SINK like a rock as in 1998 as hot money exits

What will be the consequence of a Euro Collapse? One picture says it all. According to the forecast, the immediate effect of the collapse of the euro will be ((scroll below for blown-up pic):

> Decline in economic output

> Increase in Unemployment rate

> Increase in consumer prices

Actually how likely will be the collapse of the Euro?

According to officials from Deutsche Bank, the ‘scenario is very likely’ and German companies are already preparing for the possibility of doing business in pesetas and drachmas again.

Whatever pacts and deals will be torn apart when the Euro disintegrates. Business contracts and deals will have to be reassessed and many companies are expected to go into bankruptcies.

All of Europe will not be spared, Germany will also be much affected and is estimated to lose at least 500 billion euros and can be shown in the following chart.

Source : Spiegel

Effects will spread like Wildfire

The effects will spread like a Tsunami Wave and according to Economists from ING Bank that “ in the first two years following a collapse, the countries in the euro zone would lose 12 percent of their economic output.

This corresponds to the loss of more than €1 trillion. It would make the recession that followed the bankruptcy of investment bank Lehman Brothers seem like a minor industrial accident by comparison. Even after five years, say the ING experts, economic output in the euro zone would still be significantly lower than normal. ”

And according to the German Finance Ministry “in the first year following a euro collapse, the German economy would shrink by up to 10 percent and the ranks of the unemployed would swell to more than 5 million people“.

How does it affect the Companies and Malaysia?

One of the effect when Southern Europe countries break off from the eurozone will be the implementation of the so called trade barriers. Every country will have to protect its industries and hence tariff on imported goods will be hike tremendously. Moreover, there will be an incentive to devalue their currencies so as to make their exports more attractive.

Another blow to Germany will be the reduced demand of German products due to the price hike caused by the devaluation of their currencies. Germany will be hardest hit if the Euro collapse because it is the largest exporter to Spain and Italy and in fact most Southern Europe countries. Its exports to Italy and Spain accounted to more than 100 billion euros.

Even BMW’s CEO Norbert Reithofer warns that a collapse of the euro "would be a catastrophe," and says that he "doesn't even want to imagine it"

Anyway as of this writing (12.30 am), the Greek's Stock Index Athex Composite has lost more than 7% after Greek Finance Minister resigned and Spain's IBEX dropped more than 3.8%.

Talk about the 'Band Aid' effects of last week's bailout, which failed to calm markets after all.

Malaysia will not be spared either because a lot of Emerging Markets like Indonesia,Thailand,Singapore and Philippines have large borrowings from European Banks.

When they start to repatriate their funds back to Europe, there will be a big hole in our financial market and the effects will be similar to the 'Hot Money' leaving our country not too long ago in 1998!

Malaysia Chronicle

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