The spotlight continues to shine on Greece, yet the picture remains shrouded in fog with former ECB chief economist preaching “This is a big chance – probably the last for Greece”.
Please consider Greek Bailout Would Deal ‘Major Blow’ to Euro, Issing Say.
Former European Central Bank Chief Economist Otmar Issing said bailing out Greece would deal a “major blow” to the euro’s credibility.
“The viability of the whole framework — nothing less — is at stake,” wrote Issing, a founding member of the ECB’s executive board, in the Financial Times today. “Financial assistance for countries that violated the terms of their participation in EMU would be a major blow for the credibility of the whole framework.”
Issing, who argued in the 1990s that political union would make running a common currency easier, said helping Greece now would break EU rules and set an unwelcome precedent.
“Such principles do not allow for compromise,” Issing wrote. “Once Greece was helped, the dam would be broken.”
“The question is whether monetary union can survive without such a political union,” said Issing. “The current crisis must be handled in such a way as to produce a positive answer.”
“This moment is a turning point for European monetary union, and for the future of Europe,” Issing said. “This is a big chance – probably the last for Greece, and others – to adapt fully to a regime of stable money and solid public finances.”
Societe Generale Sees Euro Breakup?
Inquiring minds are reading SocGen’s Edwards Sees Euro Breakup as Feldstein Predicts Change.
The Greek budget crisis is a symptom of imbalances that will lead to the breakup of the euro region, according to Societe Generale SA strategist Albert Edwards, and Harvard University Professor Martin Feldstein said monetary union “isn’t working” in its current form.
Southern European countries are trapped in an overvalued currency and suffocated by low competitiveness, top-ranked Edwards wrote in a report today. Feldstein, speaking on Bloomberg Radio, said a one-size-fits-all monetary policy has fueled big deficits as countries’ fiscal records differ.
The problem for countries including Portugal, Spain and Greece “is that years of inappropriately low interest rates resulted in overheating and rapid inflation,” Edwards wrote. Even if governments “could slash their fiscal deficits, the lack of competitiveness within the euro zone needs years of relative (and probably given the outlook elsewhere, absolute) deflation.
Any help given to Greece merely delays the inevitable breakup of the euro zone.”
“They have a single monetary policy and yet every country can set its own fiscal and tax policy,” Feldstein, 70, said. “There’s too much incentive for countries to run up big deficits as there’s no feedback until a crisis,” he said.
It’s decision time for Greece. EU credibility and even the future of the EU itself is at stake.
Mike “Mish” Shedlock
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