Wednesday, 24 August 2011

Greenspan: "The euro is breaking down" - Time for Merkel to get serious

Former Federal Reserve chairman Alan Greenspan is the latest in a long list of prominent economists, who think that the euro in its present form will fail:

"The euro is breaking down," Greenspan said. European banks are in trouble because they hold debt of countries close to default, such as Greece, he added. "The reason we're so sluggish is the level of uncertainty."
Concern about Europe's ongoing debt crisis has contributed to fears of a double-dip recession on this side of the Atlantic, especially following a downturn in U.S. manufacturing sentiment. A gauge of factory output on the U.S. eastern coast continued to decline in August, according to data released Tuesday by the Federal Reserve Bank of Richmond.
The euro-zone crisis matters, Greenspan said, because the world economy is extremely integrated and because about 20% of U.S. exports go to Europe. Though the odds of a new recession in the U.S. have risen, the former Fed chief said he doesn't expect that to happen--at least for now.
Casting serious doubt over the continued survival of the euro, Greenspan said the cultural and economic differences between northern and southern Europe are just too big. While countries in the north--such as Germany, France and Finland--have a lot in common, they are very different to countries in the south, such as Greece.
Southern European states tend to have current account deficits, meaning they consume more than they produce, so they end up having to borrow from countries in the north. "That cannot go on," said Greenspan, who served as Fed chairman from 1987 until 2006.

Read the entire article here

The question is, how long can Angela Merkel disregard the growing criticism - even among the supporters of her own party - against her lack of leadership. So far, her, and president Sarkozy´s policy has been to postpone any real decisions, hoping for a "miracle" to happen later. But, as Greenspan said, the euro will break down - and it must be replaced by something better. And that better is not a federal European state - which people do not support. Neither is the "European economic government", led by "president" Herman von Rompuy, a solution. (It is a joke).

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