Euro founder admits some nations may be forced to leave

Otmar Issing believes Germany would be better off staying in the euro

Matthew Sparkes

August 09 2012 08:09 AM

ONE of the founding fathers of the euro admits that some states may be forced to abandon the single currency, but insists Germany would be better off staying in.

Otmar Issing, a former European Central Bank chief economist, warned that the eurozone could be heading towards fracture in a book called How we save the euro and strengthen Europe published this week .

"Everything speaks in favour of saving the euro area. How many countries will be able to be part of it in the long term remains to be seen," said Mr Issing in the book, which is written as a conversation between an economist and a journalist.

At no point did he explicitly refer to Greece, but the debt-stricken country has been hovering perilously close to default and an exit from the eurozone as it makes harsh spending cuts and tax hikes to appease the EU and ECB after receiving billions in bail-out payments.

"We are still a long way off saying 'that's it, now we are sure to make progress'. Substantial reforms in almost all countries are still pending," he added.

Mr Issing is one of the founding fathers of the euro, but also predicted potential problems with the plan and argued that political union ought to precede a shared currency to ensure its stability in the long-term. The economist has now said there is a case for some countries to leave the union in order to solve their own debt problems, but that Germany would do best to remain a member.

"Even in its short existence, the euro has been more stable than the mark", he said.

The German economist also played down the role that the central bank, his former employer, could have in solving the debt crisis, suggesting that countries needed to fix their own problems.

"There is no quick fix and anything in the direction of euro bonds or something similar would mean for me the end of the stability-oriented currency union.

"The less politicians address the root of the problems, the more they look with their expectations and demands to the ECB, which is not made for this. It is a central bank and not an institution to rescue governments threatened by bankruptcy. A central bank always also acts as a lender of last resort for the banking system - but it does not rescue governments," he said. "Exaggerated expectations alone can harm the prestige of the institution."

Earlier this week Jean-Claude Juncker, the leader of the eurozone finance ministers' group, also said the world could cope with Greece leaving the eurozone - but that it still holds dangers.

“From today’s perspective, it would be manageable but that does not mean it is desirable,” he said. “Because there would be significant risks, especially for ordinary people in Greece.”

Last month a survey conducted on behalf of the weekly magazine Bild am Sonntag showed that the majority of Germans believed that they would be better off without the euro. Of those taking part 51pc said that the country would be in a better position outside the eurozone, while 29pc said that it would be worse off.

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