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."
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.
http://euobserver.com/9/113397
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