Former US Federal Reserve chairman Paul Volcker warned last night that the single currency faced failure and could break up unless European politicians found the political will for deeper integration.
Volcker, a key economic advisor to US President Obama, said that EU leaders must choose “whether to get more integrated or less”, blaming them for failing to tackle obvious weaknesses into the euro over the last decade.
His public intervention in a speech in London follows a chorus of warnings from economists and academics that the monetary union was not sustainable in the wake of the fiscal crisis that has swept across Europe.
Speaking at the London School of Economics Volcker said that the European Union had come to the point where it had to decide “whether to get more integrated or less integrated.”
The common currency had “fallen into the trap that was there from the beginning” he said. He described the trap as the formation of a common currency and monetary policy – without a common government, problems that he said had been anticipated somewhat in the stability pact.
Volcker, who now heads the Council of Economic Recovery Advisory Board, said: “That is the big problem of the euro – the hope and expectation that there would be some basic economic adjustments in countries like Greece. They had ten years to get to work and those ten years were in a sense wasted.”
EU ministers this week unveiled an unprecedented emergency aid package worth nearly $1 trillion in a bid to save the 16-nation currency.
Earlier he used a speech at the Mansion House, the residence of the Lord Mayor of London, to warn Europe faced “the great problem of a potential disintegration of the euro”.
“Will economic and financial distress finally be resolved by looking toward more integration in a closely integrated Europe, politically as well as economically?” Volcker asked. “I do have my hopes, as a believer in the euro.”
A raft of European politicians and economists have warned that Brussels must embark on full economic union to prevent a break-up on the single currency.
Yannos Papantoniou, who was Greek finance minister at the time of Greece’s entry in 2001, told Emerging Markets that the euro was “in trouble because it has not yet got institutional mechanisms to fully accept economic union”.
“On the fiscal policy side there is a lack of proper co-ordination and a lack of proper control on the bailout side,” he said. “The eurozone must get its act together and start a serious discussion for revising long term arrangements for transforming the existing monetary union into a fully-fledged political union to give the euro a chance to survive.”
Julian Callow, Chief European Economist at Barclays Capital, said that the crisis had presented the perfect opportunity for creating a more federalist Europe. “But it does seem to lack vision,” he told Emerging Markets.