Former Federal Reserve chairman Alan Greenspan has a dire warning for Europe. Simply put: “The eurozone isn’t working.”
Speaking in an interview in the February issue of “Gold Investor” — a magazine issued by the World Gold Council, Greenspan argued that imbalances in the economic strength of eurozone nations make the continued function of the single currency area a major concern.
Those imbalances, he said, are largely down a north/south geographical line, with the bloc’s more prosperous nations such as Germany consistently funding the deficits of southern states. That simply can’t go on, Greenspan said.
Here’s the key extract from the interview:
“The European Central Bank (ECB) has greater problems than the Federal Reserve. The asset side of the ECB’s balance sheet is larger than ever before, having grown steadily since Mario Draghi said he would do whatever it took to preserve the euro. And I have grave concerns about the future of the Euro itself. Northern Europe has, in effect, been funding the deficits of the South; that cannot continue indefinitely. The eurozone is not working.”
Greenspan — who governed the Fed between 1987 and 2006, and consequently oversaw the US economy directly before the financial crisis — has consistently been critical of the eurozone.
The morning after Britain voted to leave the European Union, he told CNBC: “Brexit is not the end of the set of problems, which I always thought were going to start with the euro because the euro is a very serious problem.”
During the same interview, Greenspan once again defended the gold standard monetary system that was widely followed by economies around the world until the 1930s.
The gold standard pegged the value of currencies to the precious metal at $US35 an ounce, and the US Federal Reserve promised other central banks to exchange dollars for gold, and vice versa.
“I view gold as the primary global currency,” Greenspan said.
“Today, going back on to the gold standard would be perceived as an act of desperation. But if the gold standard were in place today we would not have reached the situation in which we now find ourselves. We cannot afford to spend on infrastructure in the way that we should,” he added.