Straight from the Specialists
(The views expressed in this column are the author’s own and do not represent those of Reuters)
The Euro should not exist. In a perfect world (run by economists) the Euro would never have been created. Sadly, however, the world is not perfect — and it is run by politicians. The result is an entirely dysfunctional monetary union.
The Spanish economy has youth unemployment approaching 50 pct. The Greek economy is in its fourth consecutive year of negative GDP growth and will embark on a fifth year of negative growth later in 2012. Euro area countries have to share a common interest rate and a common exchange rate with Germany — where unemployment is at a 20-year low and growth is positive if unspectacular around 2.5 pct. This is an unworkable situation — what Greece needs is very different from what Germany needs.
Will the Euro break up? We must hope not. The consequences would be devastating (a weak country could see its economy halve in size on exit). The social unrest we have today is minor compared to what could take place if the Euro were to fragment. As the Euro was essentially a political creation, it must be political will that keeps it together — and it would be wrong to underestimate that political will.
(Paul Donovan is a Managing Director and Global Economist at UBS. The views expressed in this column are the author’s own and do not represent those of Reuters)
The euro should not exist. More precisely, the euro should not exist in its current form, with its current membership.