“I don’t see any solution to the Greek crisis. It is totally, absolutely impossible for this to work out,” he said.
“Greece has got to default and it’s going to mean Ireland, Spain and Portugal are going to have default as an option. And this is going to mess up the euro and the European banking system.”
On Friday, banks and policymakers moved closer to a deal to help Athens secure funds ahead of a parliamentary vote on austerity next week that Greek Prime Minister George Papandreou must win to avert default.
Despite a refusal by the conservative opposition to back the plan along with signs of revolt in his own socialist party, Papandreou said he was confident the deeply unpopular package of spending cuts, tax hikes and privatizations would pass.
“It is a moment of historic importance. If everybody resists, worse things will come, perhaps even bankruptcy,” Papandreou told a news conference at the sidelines of a summit of European Union leaders in Brussels.
FX Concepts’ Taylor, who predicted late last year that the US could enter another recession in 2011, repeated his forecast that the euro will slide to parity against the US dollar, although he’s not certain of the timing.
On Friday, the euro was down 0.6 percent at $1.41700, but still up 5.9 percent so far this year.
In October last year, he said the euro would most likely peak between $1.43-$1.45 in November and was most negative on the euro versus the dollar at a time when almost everybody was selling the greenback because of the Federal Reserve’s quantitative easing.
Taylor does not think the austerity measures will pass. Even if the Greek parliament does approve the plan, the government will be tested once again by a referendum this autumn on Greek electoral and political changes. This could evolve into a de facto test of support for the government and its austerity program.
“The track that the euro is on assures that the voters, or the mobs...will push their governments into leaving the euro or completely changing it.”
Taylor said the European Central Bank is making a mistake by raising interest rates at a time when 15 countries out of the 17 in the euro zone are in recession.
“The ECB is playing it too close to the Germans. They’re really just worried about Germany overheating. Screw the Germans! Let the Germans do the internal things to slow their own economy.”
“I know their office is in Frankfurt and I know that they’re fashioning themselves as the modern Bundesbank. But the ECB is crucifying 15 countries, which are in recession, and (catering) to the two (countries) which are not in recession.”
Taylor said the euro zone crisis overshadows all other global worries and could plunge major economies into another recession.
“It looks like hell to me. This should be the beginning of a major decline in risk assets,” Taylor said.
In December last year, Taylor said the US economy is headed for a recession this year that is likely to benefit the dollar, weigh on the market and commodity prices.
The recent soft patch of economic data has increased speculation over whether US policymakers will engineer a third round of bond purchases, an unconventional monetary measure known as “quantitative easing.” The $600 billion that makes up a second round, or QE2, will conclude on June 30.
So far this month, the S&P 500 is down 5.5 percent on pace for its worst monthly performance since May 2010.
“Risk assets have made its high, which means basically you have to look for weak stock markets, you’ve got to look for credit spreads to increase, high-yield bonds to get into trouble, the dollar to rally, and commodity prices to come down.”
He forecasts the S&P 500 to decline to 1,000 points in fairly short order. The S&P 500 closed Friday down 0.2 percent, the seventh down week in the last eight.
