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Volcker Fears Potential Disintegration of the Euro, Without Common Fiscal Policy

Saturday, May 15th 2010 - 04:39 UTC
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Volcker chairs President Barack Obama’s Economic Recovery Advisory Board Volcker chairs President Barack Obama’s Economic Recovery Advisory Board

Former Federal Reserve chairman and advisor of the Obama administration is concerned that the Euro area may break up after the Greek fiscal crisis that sparked an unprecedented bailout by the region’s members.

“You have the great problem of a potential disintegration of the Euro” Paul Volcker (82) said in a speech in London. “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.”

European leaders pledged a rescue package of almost $1 trillion this week to counter a mounting debt crisis and restore confidence in the currency. Former US Treasury Secretary John Snow said this week the Euro may need a common fiscal policy to survive, a comment echoed by Norman Lamont, who was UK finance minister when Britain opted out from the Euro in 1992.

“Will economic and financial distress finally be resolved by looking toward more integration in a closely integrated Europe, politically as well as economically?” said Volcker, who chairs President Barack Obama’s Economic Recovery Advisory Board. “I do have my hopes, as a believer in the Euro.”

The aid package also involved the European Central Bank, which intervened in debt markets after a rout in bonds across the Euro region’s periphery. The European Commission in Brussels said it would “strengthen” its deficit oversight and “align national budget and policy planning” under a system of economic policy coordination.

“For the Euro to be able to survive long term, fiscal consolidation of some kind—tax policy consolidation, fiscal policy consolidation—is probably necessary,” Snow said. Bank of England Governor Mervyn King also commented on the crisis, saying two days ago that it is “very clear” that the currency region needs a fiscal union “to make the monetary union work.”

Soaring bond yields on concern that Greece’s fiscal crisis would spread threatened to shut Spain and Portugal out of debt markets and sparked a weekend of talks with Euro-region finance ministers and central bankers.

Deutsche Bank AG Chief Executive Officer Josef Ackermann said in an interview with Germany’s ZDF broadcaster that Greece may not be able to repay its debt in full, arguing it would require “incredible efforts.”

Volcker expressed hope that the Euro will survive. “There is strong opinion to keep it going,” he told journalists after his speech at Mansion House, the residence of the lord mayor of the City, London’s financial district. “That does require, I think, changes in the structure of European economic policy.”

Europe has so far been well-served by the Euro, Volcker said. “If you didn’t have that common currency in Europe, they would have bigger problems than they have now.”

Top Comments

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  • agent0060

    Volcker is an idiot. The problem is an artificially-imposed currency, the Euro. The Euro is a mechanism for creating the “United States of Europe”, and therefore has American support. Fortunately, David Cameron has already said that Britain will not adopt the Euro during his premiership. Safe for a few years then!

    May 15th, 2010 - 06:52 pm 0
  • Rhaurie-Craughwell

    excellent the collapse of the Euro will put an end to many pointless costly burecratic projects, could we see an end to CAP and CFP? Both of the most destructive policies ever implemented by the EU

    No country would be stupid enough to hand over all fiscal control to an unelected body in Brussels... or would they? I can think of a few impotent limp wristed Europhile leaders, Nick Clegg for one, thank god he's in a coalition with the Conservatives, they will keep his Europhile beliefs under control!

    Agreed Vockler is a fool but a wise fool, it's long been known that the Euro was an artificially imposed currency for political purposes, I believe no country was actually given a referendum on whether they wanted these most visible of changes?

    The sooner it is rid off the better for all countries of Europe the EU should get back to it's core values of a free trade alliance not some quasi Federal bureaucratic regulatory body.

    May 16th, 2010 - 03:57 pm 0
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