Tuesday

6th Dec 2022

Former US finance chief says euro is 'breaking down'

  • Greenspan chaired the federal reserve from 1987 to 2006: 'The general feeling out there is of a lull before the storm' (Photo: The Aspen Institute)

Alan Greenspan, the former chairman of the US federal reserve, has said the eurozone is breaking apart due to variations between economies in the north and south of Europe.

Speaking during a question-and-answer session at the Innovation Nation Forum in Washington on Tuesday (23 August), the 85-year-old economist said: "The euro is breaking down and the process of its breaking down is creating very considerable difficulties in the European banking system."

Read and decide

Join EUobserver today

Become an expert on Europe

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

He added: "That stuff [eurozone country bonds held by banks] has always been thought of as the ideal collateral and now it’s getting highly questionable."

Greenspan explained that northern countries, such as Germany and Finland, have a culture of budgetary discipline while southern nations, such as Greece, historically consume more than they produce and build up debt.

"The problem is that there is a growing cleavage in the economic and analytical and banking circles as to whether the euro, which is the crucial issue here, should be 17 countries with very significantly different cultures ... That cannot go on," he said. "The general feeling out there is of a lull before the storm."

Greenspan's remarks - widely reported by financial newswires - saw the euro dip against the dollar and the cost of German goverment bonds, viewed as a safe haven, tick upward.

His comments came out the same day as Spain moved a step closer to the northern model.

Opposition leader Mariano Rajoy told MPs at an emergency meeting of the Spanish parliament on Tuesday that his Popular Party will back government proposals to insert borrowing limits into the country's constitution. "My parliamentary group is ready to support the initiative and facilitate its implementation," he said. MPs also voted through €5 billion of extra savings by - amid other measures - switching to generic drugs in the health service.

The constitution move follows a similar pledge by Italy after Madrid and Rome's cost of borrowing shot up last month.

Eurozone leaders in July agreed a second bailout package for Greece and new bond-buying powers for its crisis-fund, the EFSF, in a bid to calm markets. But the deal - which allows lending countries to ask Greece for collateral "where appropriate" - is proving hard to implement.

Finnish Prime Minister Jyrki Katainen at a party conference in Tampere on Tuesday said he is willing to modify his request for Greece to put up to €600 million in an escrow account as a guarantee.

But he refused to drop the plan despite criticism from Austria and the Netherlands. "Our responsibility is to seek a solution which will be acceptable and tolerable to other eurozone nations," he said.

Austrian finance minister Maria Fekter on Tuesday indicated that Vienna will block the Finnish deal because it increases costs for fellow lenders. "Many countries reject the solution that Finland negotiated for itself to the disadvantage of all others ... If there is collateral for one country, then all others must be treated the same way too," she told press in the Austrian capital.

Germany has also being dragged into the collateral dispute after a senior member of Chancellor Angela Merkel's CDU party said Berlin should seek guarantees.

"Several states are making big efforts to service their debt. This must be honored. But to keep up those efforts in the long term, collateral is needed," labour minister and CDU deputy chairman Ursula von der Leyen said on German TV.

Eurozone capitals are currently in talks on collateral at "expert level" amid speculation that leaders will need to call another summit to reach agreement.

European markets tumble amid fears on global growth

European markets had their biggest fall since March 2009 on Thursday amid concerns over the state of the global economy and the ability of the eurozone to deal with its debt crisis.

EU speeds up anti-crisis measures after US downgrade

The ECB has said it will buy Italian and Spanish bonds, while eurozone countries are to hold special parliamentary sessions in order to speed up reforms after the recent escalation in the financial crisis

Barroso raises alarm about severity of euro crisis

EU commission chief Barroso has indicated that market developments on Italy and Spain threaten the survival of the euro, amid fresh talk of increasing the EU's €440 billion bailout pot.

Feature

What happens when a currency collapses? Ask Bulgaria

Fifteen years ago, both Bulgaria and Romania went through rampant inflation linked to a financial crisis. Bucharest narrowly avoided the collapse, but Sofia was less fortunate and experienced a meltdown of the sort Greece is currently trying to prevent.

Finland on Greek collateral: 'It's not about the money'

Finnish minister Alexander Stubb has said his country's demand for Greek collateral is meant to defend the eurozone principle of financial responsibility. But he admitted that Finnish eurosceptics have played their part in the initiative.

Opinion

Serbia now has no choice but to join EU sanctions on Russia

Vladimir Putin himself is somewhat suspicious of Serbia's leader, as are most who deal with the opaque Aleksandar Vucic. The Russian president has preferred to keep his Serbian counterpart compliant, via a tight rein of annually-reviewed gas pricing.

Stakeholders' Highlights

  1. Nordic Council of MinistersCOP27: Food systems transformation for climate action
  2. Nordic Council of MinistersThe Nordic Region and the African Union urge the COP27 to talk about gender equality
  3. International Sustainable Finance CentreJoin CEE Sustainable Finance Summit, 15 – 19 May 2023, high-level event for finance & business
  4. Friedrich Naumann Foundation European DialogueGender x Geopolitics: Shaping an Inclusive Foreign Security Policy for Europe
  5. Obama FoundationThe Obama Foundation Opens Applications for its Leaders Program in Europe
  6. EFBWW – EFBH – FETBBA lot more needs to be done to better protect construction workers from asbestos

Latest News

  1. EU countries struggle to crack Hungary's vetos
  2. Frontex expanding migrant route-busting mission in Balkans
  3. EU ministers in fresh battle on joint debt, after Biden subsidies
  4. EU: 'We'll see' if Moscow actually stops selling oil over price-cap
  5. Bad Karma
  6. Serbia now has no choice but to join EU sanctions on Russia
  7. Hungary's funds showdown in focus This WEEK
  8. EU must break Orbán's veto on a tax rate for multinationals

Stakeholders' Highlights

  1. European Committee of the RegionsRe-Watch EURegions Week 2022
  2. UNESDA - Soft Drinks EuropeCall for EU action – SMEs in the beverage industry call for fairer access to recycled material
  3. Nordic Council of MinistersNordic prime ministers: “We will deepen co-operation on defence”
  4. EFBWW – EFBH – FETBBConstruction workers can check wages and working conditions in 36 countries
  5. Nordic Council of MinistersNordic and Canadian ministers join forces to combat harmful content online
  6. European Centre for Press and Media FreedomEuropean Anti-SLAPP Conference 2022

Join EUobserver

Support quality EU news

Join us