Monday, February 11, 2013

'Eurozone breakup might end EU'

The EU has a future despite being in the grips of crisis, Robert Mundell, the Noble Prize winning economist told RT, adding that the struggling eurozone is key to the political union, which will rise or fall on the basis of major economic reforms.

RT: When you talk about debt I think there are two points to make. First of all Europe has always been plagued with debt. Greece rigged its budget deficit in order to qualify. So maybe it is not the debt but maybe that the Euro was too good or maybe too utopian for Europe?

RM: What it did to the creation of the Euro when those countries came in, like Italy, before the euro interest rates were around 12%-14%, that had a devaluation premium, when they joined the euro, suddenly [they all went down] to 4%. And this encouraged countries now with low debt you can add more to it gave the wrong message because what they should have realized is that these debts now are now euro debts, they’re no longer drachma or lira debts. You can’t devalue them away, you’re stuck with this and maybe in retrospect it might have been wise for countries with high debt not to lock themselves into that fixed debt or to have had devaluation and inflation before. But nobody wanted to do that, and if they had done it they might have risked not being able to make that deadline of 1999, of getting all those countries into the Eurozone. The political moment might have been missed, and it may not have ever come up again.