In a HARDtalk interview broadcast on BBC World News on Monday March 9th 2015, the fund manager Neil Woodford tells Stephen Sackur that he does not believe that the Eurozone is viable in its current form and that he believes that continued uncertainty over a potential British exit from the EU will be damaging to the British economy.
Neil Woodford is the Head of Investment at Woodford Investment Management and was formerly Head of UK Equities at Invesco Perpetual
The full interview was on BBC World News on Monday 9tH March at 0430 and 0930 and will be repeated at 1630 and 2130 GMT. It was also be broadcast on the BBC News Channel at 0430 on Monday 9th March and will be repeated at 0030 on Tuesday 10th March.
Transcript:
Stephen Sackur: Let’s talk about the geopolitical context now, where do you see the greatest risks within the world economy right now?
Neil Woodford: I see a lot of risk in the world economy. I think growth is the problem, and deflation, really. So I think the world is facing a structural absence of growth for all sorts of reasons…
SS: Long term?
NW: Yes. Well, I have optimism in the medium / long term because I think that technology will transform the prospects for growth. But in the short /medium term and I mean on a 3 to 5 year time horizon I see the world economy really struggling to grow. And certainly to grow at levels that central bankers would like and frankly investors would like.
SS: Well, I guess in the past I guess we could assume that the norm for Western economies is sort of two and a half / three percent per year and we’ve lost that, particularly in Europe. And what Europe is still wrestling with is the massive overhang from the financial crisis, sovereign debt still a huge problem, not least in Greece. They’ve kicked the can down the road in terms of Greece’s membership of the Eurozone but do you think, in the end, the Eurozone is viable in its current form?
NW: Probably not in the long term…
SS: You don’t think it is?
NW: No, no I don’t.
SS: And are you investing on the basis that the Eurozone will in the medium to long term will collapse?
NW: I would say I’m very conscious of the stresses and strains that will continue to increase I think in the Eurozone. The debt problems, the economic disparity, in a very simple sense pretending that Greece was Germany is a fundamental error. Pretending that Portugal was Germany… Having the same interest rate, the same monetary policy for two economies that are so different seems to me to be a fundamentally flawed assumption right at the start of the project. The policy makers are very committed to keeping the show on the road. Too many people have underestimated the commitment of policy leaders in Europe to try and ensure the project is successful, but ultimately I think economics has a habit of overruling politics .
SS: The other great unknown, the great uncertainty right now is whether Britain will be still a member of the European Union after 2017. Are you currently investing on the basis that Britain might well leave the European Union?
NW: It’s something that I have to think about now. For a long time in my career, for many periods during my career I haven’t had to worry too much about political risk. It’s in the background but it hasn’t been front and centre in my sort of assessment of macro risk. These days I think you have to recognise that political risks are all over the place.
SS: And for you, a British exit from the EU would be a risk, in your view a damaging risk, a negative?
NW: Potentially very negative in the short term, yes, I think it would be. The likelihood of a referendum I think will put a brake on external investment, international investment in the UK. I think that probably is the case. I think it will create uncertainty just in the same way the Scottish Referendum created uncertainty north of the border. I think a referendum on our membership would create a lot of political and economic uncertainty in the UK.
SS: Hang on, you seem to be saying that whatever happens, the fact is that for the next two years, British economic potential and British growth will be damagingly affected by the reality of continued uncertainty over EU membership?
NW: I think it will, yeah.
SS: Can you put a number on it?
NW: No, that would… I think it would be, sort of, not a terribly scientific judgement – I think it’s a gut feel that investors will definitely have to impute a higher level of uncertainty with respect to the future of the economy, the currency. All those things will have an effect on investment.
SS: But I suppose what people will be interested in, not only in Britain but around the world, is an investor like you saying that your worry about this particular aspect of policy in the UK is affecting the investment decisions you feel able to make.
NW: To some extent yes but I have to say… My own view is that this day was coming anyway regardless of, to some extent, what happened in this election. Ultimately this country will have to make a choice about whether it is a fully signed up member of a Eurozone project or not and I think, sort of being half in as we are at the moment was never really a long term viable position to be in. I think we had to either make a decision to get out or get fully in.
