Sunday

22nd May 2022

Friedman: 'Strong possibility' of euro zone collapse

Milton Friedman, the Nobel-Prize winning US economist and one of the most influential economists of the 20th Century believes there is a "strong possibility" that the 12 member euro zone could collapse "in the next few years".

In an exclusive interview with the EUobserver, Professor Friedman argues, "there is a strong possibility that the euro zone could collapse in the next few years because differences are accumulating between countries ... I'm not saying it is a certainty, just that it is a strong possibility".

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He suggests that the euro could be replaced with the old national currencies.

New member states, new problems

His main concern with the workings of the euro zone is that it is difficult to have an economic union between countries that have substantially different economies, cultures and languages.

He believes that these problems are set to mount with the entry of the ten new member states.

Although he concedes that "actually I think that the euro has been doing quite well so far", he says that "there are problems facing it especially when you consider that you have the ten new countries in the EU".

The new countries are legally obliged to join the single currency and four of them (Cyprus, Estonia, Lithuania and Slovenia) have indicated that they intend to join it as soon as possible.

Professor Friedman believes that "there are certainly different problems for different countries" but advises, "if they are going to join, the sooner the better".

EU's economic goals are \"a nice dream\"

Professor Friedman, who played a pivotal role in shaping the US economy in the latter half of the 20th century, is not optimistic about the EU's chances of fulfilling its self-imposed economic goals known as the Lisbon Agenda.

He said, "No I do not think that the EU can catch up with the US by 2010. It is a nice dream, a good hope and I wish them well, the world would benefit".

"But I think the chances of achieving it are very slim. The rest of the world is not going to stand still. India is not going to stand still, China is not going to stand still and the US is not going to stand still".

Furthermore, he believes that the EU - and even the US - will eventually be caught up by the rapidly growing economy of China.

"It is almost certain that, at the current rate of growth, China will overtake both the EU and the US. But this is quite a long time down the road".

Stop strangling your economies

But the Professor, who was awarded the Nobel Memorial Prize for economic science in 1976, has plenty of advice for the EU.

"There is no doubt what the EU should do. Abolish your rules and regulations. Abolish your [high level of] spending. The European economy is too burdened with rules and regulations".

"There is nothing wrong with the basic strength of the individual countries. But they have burdened themselves with a range of rules that strangle their economies".

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