Tuesday

28th Jan 2020

Economists call for political union to prevent euro collapse

Prominent Belgian economist Paul de Grauwe has argued the euro is bound to collapse in 10 to 20 years as there is no clear progress towards a political union in Europe.

Professor De Grauwe from the Catholic University of Leuven, advocated the creation of the common currency in the 1990s but his forthcoming research paper will present evidence of the euro's risks for the future, news agency AFP reports.

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"A political union is the logical end-point of a currency union," Mr De Grauwe told Belgian weekly, The Business, adding "The monetary union will collapse ... not next year, but on a time frame of 10 or 20 years. There is not a single monetary union which survived without political union. They have all collapsed."

Economists point out that the common currency was established with the view to creating more jobs, higher growth and lower prices, but the current situation is far less optimistic.

Growth is around two percent a year in the 12-member eurozone and high unemployment - above 8 percent – remains.

These problems relate to the poor record of individual member states in pursuing reforms to improve economic performance, but the EU has little powers to sanction them for failing to do so.

"If political union fails to materialise, then in the long term the euro area cannot continue to exist," argues Mr De Grauwe.

The Belgian economist is not the only expert to raise the issue.

The same point was made at last week's hearing of a new member of the European Central Bank's board, German Bundesbank's vice president Jurgen Stark.

"The EU currently is in a critical phase," Mr Stark told MEPs on Tuesday (15 April), adding "I am concerned about these trends because monetary union ... needs a common political foundation and a political commitment to function smoothly."

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