Stephen Roach, a Yale professor and the former chairman and prior chief economist of Morgan Stanley Asia, was on Bloomberg TV this morning discussing the euro crisis ahead of a summit of euro area leaders taking place today and tomorrow.Roach called the euro a Ponzi scheme, telling Bloomberg:
If you were Greece, all you had to do was sign up for the euro, and you got German interest rates. That, to me, is the Ponzi scheme that is emblematic of this great and glorious pan-regional integration. They didn’t do anything to deserve those rates, but they got them.
However, Roach also said that there is a “currency fix” for the euro crisis. He told Bloomberg:
I think there is a currency fix. I just think it’s a euro that’s well below where it is today.
I go back to the Asian financial crisis of the late 1990s. The thing that Asia’s crisis-torn economies had that Greece and Spain and Portugal and Italy don’t have was individual currencies that they devalued by 25 to 30 per cent.
They took bailouts from the IMF, along with very tough conditionality — what we today call austerity. They went into very sharp contractions in 1998 and 1999. But guess what? Within two years, they had regained pre-crisis peaks, and they recorded a decade of very strong, spectacular growth.
There is an equivalent level of the euro that could [bring] that type of reaction.
We’ll have live updates from the EU summit at Business Insider.