Bloomberg News

Nobel Winner Mundell Sees Euro Survival, Financial Post Reports

June 09, 2012

Nobel Prize-winning economist Robert Mundell said the euro will survive economic upheaval in Europe and defy critics, the Financial Post reported.

“The euro -- barring a political revolution in Europe -- is here to stay,” Columbia University professor Mundell said in an interview with the Canadian newspaper.

Spain may today move closer to becoming the fourth euro- area nation to receive aid as European leaders hold talks in Madrid. A bailout for Spain, reeling from a recession and the bursting of a property bubble, may dwarf previous rescues in the effort to stem the turmoil that began with Greece’s disclosure in 2009 that its finances were in worse shape than was previously known.

“If the euro is a problem for Europe, it’s because the euro has been too strong, not too weak,” Mundell said. An exit by Greece would strengthen, not weaken, the euro. “A currency union is like an alliance -- shedding a small member with more liabilities than assets can make the union stronger.”

The European Central Bank, the European Financial Stability Facility and the International Monetary Fund must assume responsibility to help ailing countries and insure that fiscal targets are met, Mundell said. Bailout recipients must also relinquish control over their finances to the European Union.

“Bailouts have to be linked to some transfer of fiscal authority from countries that have become insolvent to the European Commission acting under the auspices, for constitutional correctness, of the European Council,” Mundell said.

“The euro is the glue that keeps the core of Europe together,” Mundell said. “Never before has there been a currency union that covers so large a share of the world economy and that has grown so successfully and so rapidly within the space of a decade and a half.”

To contact the reporters on this story: Cecile Gutscher in Toronto at cgutscher@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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