Paul Volcker has added his substantial intellectual weight to the chorus of professionals worried about a complete disintegration of the euro, in a London speech yesterday according to Bloomberg.
That’s because “The essential element of discipline in economic policy and in fiscal policy that was hoped for” has “so far not been rewarded in some countries.”
Still, he remains a ‘believer’ in the currency and says that Europe would have been worse off without it.
“There is strong opinion to keep it going… That does require, I think, changes in the structure of European economic policy… If you didn’t have that common currency in Europe, they would have bigger problems than they have now.”
Ie. not all hope is lost, he appears to think there is a solution whereby the euro remains intact and sustainable. Yet he failed to elaborate on how this could be done, saying, “The nature of the problem does not lend itself to one-word sound bites.” Fair enough.
It seems extremely difficult to unwind the euro system now, it has come to far and exiting the euro would require substantial lead time and thus create massive market pressure on the economies involved. The Eurozone may be forced to undergo severe economic and political adjustments in order to manage a currency system they’re stuck with. Many Europeans are suddenly realising that they had no idea what they were agreeing to when they joined the Eurozone.
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