Sunday

17th Nov 2019

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

Support quality EU news

Get instant access to all articles — and 20 year's of archives. 30-day free trial.

... or join 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.

News in Brief

  1. Catalan politicians extradition hearing postponed
  2. Germany: EU banking union deal possible in December
  3. EIB: no more funding of fossil-fuel projects
  4. UK defence chief: Russia could trigger World War III
  5. Hungary's Varhelyi will face more questions
  6. Police put former Berlusconi MEP Comi under house arrest
  7. MEPs criticise Poland for criminalising sex education
  8. UK will not name new commissioner before election

Podcast

Cultural Battlefield

Marta Keil knows firsthand the pressure on culture from Poland's ruling Law and Justice party. Her overview begins at the Polski theatre in the city of Wrocław, and describes an epic clash as the Polish museum sector is steadily hollowed-out.

Stakeholders' Highlights

  1. Nordic Council of MinistersEarmarked paternity leave – an effective way to change norms
  2. Nordic Council of MinistersNordic Climate Action Weeks in December
  3. UNESDAUNESDA welcomes Nicholas Hodac as new Director General
  4. Nordic Council of MinistersBrussels welcomes Nordic culture
  5. UNESDAUNESDA appoints Nicholas Hodac as Director General
  6. UNESDASoft drinks industry co-signs Circular Plastics Alliance Declaration
  7. FEANIEngineers Europe Advisory Group: Building the engineers of the future
  8. Nordic Council of MinistersNew programme studies infectious diseases and antibiotic resistance
  9. UNESDAUNESDA reduces added sugars 11.9% between 2015-2017
  10. International Partnership for Human RightsEU-Uzbekistan Human Rights Dialogue: EU to raise key fundamental rights issues
  11. Nordic Council of MinistersNo evidence that social media are harmful to young people
  12. Nordic Council of MinistersCanada to host the joint Nordic cultural initiative 2021

Latest News

  1. France unveils new model EU enlargement
  2. Key moments for new commission This WEEK
  3. EU threatens legal action against UK over commissioner
  4. Corruption in the Balkans: the elephant in the room
  5. Green MEPs unconvinced by Romanian commissioner
  6. EU states fell short on sharing refugees, say auditors
  7. Hungary's commissioner-to-be grilled over loyalty to Orban
  8. Widow's plea as EU diplomats debate Magnitsky Act

Stakeholders' Highlights

  1. Vote for the EU Sutainable Energy AwardsCast your vote for your favourite EUSEW Award finalist. You choose the winner of 2019 Citizen’s Award.
  2. Nordic Council of MinistersEducation gets refugees into work
  3. Counter BalanceSign the petition to help reform the EU’s Bank
  4. UNICEFChild rights organisations encourage candidates for EU elections to become Child Rights Champions
  5. UNESDAUNESDA Outlines 2019-2024 Aspirations: Sustainability, Responsibility, Competitiveness
  6. Counter BalanceRecord citizens’ input to EU bank’s consultation calls on EIB to abandon fossil fuels
  7. International Partnership for Human RightsAnnual EU-Turkmenistan Human Rights Dialogue takes place in Ashgabat
  8. Nordic Council of MinistersNew campaign: spot, capture and share Traces of North
  9. Nordic Council of MinistersLeading Nordic candidates go head-to-head in EU election debate
  10. Nordic Council of MinistersNew Secretary General: Nordic co-operation must benefit everybody
  11. Platform for Peace and JusticeMEP Kati Piri: “Our red line on Turkey has been crossed”
  12. UNICEF2018 deadliest year yet for children in Syria as war enters 9th year

Join EUobserver

Support quality EU news

Join us