Euro’s Architect Warns About Currency’s Future, New York Times Reports

The New York Times reports Euro’s Architect Warns About Currency’s Future. Even some architects of the euro are becoming pessimistic about its future. Otmar Issing, the influential former chief economist of the European Central Bank, warns that the common currency’s existence could be threatened unless member countries find a way to impose tougher spending curbs on one another. “With the failure to make sovereign states’ fiscal policies consistent with the conditions for the single currency area,” Mr. Issing wrote in an article to be published this week, “policy makers not only have weakened the functioning of monetary union, but have also called into question its very survival.” Mr. Issing’s views are particularly noteworthy because he was a key figure in the introduction of the euro. “From a former board member of the E.C.B. this is a very pessimistic statement,” said Jörg Krämer, chief economist at Commerzbank in Frankfurt. “There is a lot of disappointment in this article.” In the article, Mr. Issing wrote that rescue of countries that have pursued bad policies “adds up to an open invitation to states to live beyond their means at the expense of others.” Predictions by euro skeptics have proved true, Mr. Issing wrote in the article, which will be published this week in the bulletin of the Official Monetary and Financial Institutions Forum. “The crisis brought further evidence of a basic design flaw of monetary union, namely that we could not rely for its sound working on member countries to carry out appropriate economic policies,” Mr. Issing wrote. Mr. Issing also warned leaders not to try to create a stronger political union behind the backs of European citizens. “A political union worthy of the name cannot be set up by stealth,” he wrote. If leaders create a de facto political union under which disciplined countries subsidize the undisciplined, Mr. Issing wrote, “it will not be long before opposition to monetary union, and possibly other policies as well, appears on the agenda not just of extremist groupings but also of established political parties, in Germany and elsewhere.” Mr. Issing called for tighter rules on government spending, with automatic sanctions, and for independent organizations to determine when countries are in violation.

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