If you want to understand why it is so difficult to solve the eurozone sovereign debt crisis and why pro-euro commentators such as Wolfgang Münchau are so pessimistic, you need do no more than read today’s comments from Otmar Issing, former chief economist of the European Central Bank and highly respected economist in Germany.
It is almost a consensus view in the economic community that the eurozone needs more pooling of sovereign risk if it wants a chance of escaping the current crisis. This view stems both from the observation that the eurozone-wide sovereign debt is lower and more sustainable than that in the US, Japan and the UK and from the fact that a lower interest rate on debt for peripheral eurozone economies could transform their individual sovereign debt problem into a liquidity issue from a fundamental solvency issue.
What does Mr Issing think? Like a good creditor, he wants debtors to suffer more and believes the austerity programmes have been too weak, describing it as “disconcerting” that even Germany now supports looser systems for policing fiscal rules: Read more