Tuesday, January 11, 2011

ECB's Issing: Euro's Existence Threatened; Crisis Reveals Basic Design Flaws; Moment of Trust Postponed

Otmar Issing, former chief economist of the European Central Bank, warned today that the Euro's existence could be threatened unless member countries find a way to impose tougher spending curbs on one another.

Mr. Issing wrote: “With the failure to make sovereign states’ fiscal policies consistent with the conditions for the single currency area,”  “policy makers not only have weakened the functioning of monetary union, but have also called into question its very survival.”

The New York Times reports that he also wrote in an email: “I have indeed become very concerned that politics fail to take the crisis as an opportunity to forcefully improve the framework” for monetary union'

Mr. Issing is former member of the board of the Bundesbank and was a key figure in the introduction of the euro.

He opposed bailing out Greece and other troubled European countries saying that that rescue of countries that have pursued bad policies “adds up to an open invitation to states to live beyond their means at the expense of others.”

"Predictions by euro skeptics have proved true", [...]  “The crisis brought further evidence of a basic design flaw of monetary union, namely that we could not rely for its sound working on member countries to carry out appropriate economic policies,”

Mr. Issing also warned leaders “A political union worthy of the name cannot be set up by stealth,”, i.e, do not push policies down European throats in disguise.

Positive side

“Europe has faced repeated crises in the past and each time has emerged on the whole in stronger shape,”

He concluded: “the more these tensions will endanger the existence of E.M.U.”

“My conclusion at the start of 2011 is a somber one,”  “We have not yet reached the moment of truth for E.M.U. It has merely been postponed.”

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