Former U.S. Federal Reserve Chairman Paul Volcker said Europe’s planned permanent rescue mechanism is only a small step toward a crisis solution and leaders must battle nationalistic concerns to forge closer economic union.
“It’s only a baby step in that direction,” Volcker said in an interview in Siena, Italy. “You’ve got to talk about some kind of budgetary limits, but I think it’s beyond budgetary limits. And that is a very big deal because people think they’re giving up central points of sovereignty.”
Euro-area finance ministers meet today in Brussels after leaders agreed at a June 28-29 summit to ease the way to direct recapitalization of banks from bailout funds and to start work on Europe-wide bank supervision. Closer ties are necessary for the future of the 17-nation euro region, Volcker said.
“I would argue that that’s essential to the concept of a unified Europe and a unified currency,” he said. “And you’ve got to be prepared to do that or the currency can’t hold together.”
Volcker also said any debt mutualization and euro bonds can only happen after more economic integration. “The basic big issue is having unified economic control,” he said.
Paul De Grauwe, a professor at the London School of Economics, said a lack of trust among euro members is hampering leaders’ ability to implement more durable solutions.
“The Germans don’t trust the southerners; the southerners don’t trust the Germans,” De Grauwe said in an interview with Tom Keene on Bloomberg Television’s “Bloomberg Surveillance” today. “As long as there is distrust there is also no willingness to allow others to decide about your fate. You can only do that if you trust each, and that unfortunately is lacking in Europe.”
Asked if he was concerned about the U.S. economy, Volcker said: “I make a profession of being worried, so there’s lots of reasons to be worried.”
“It’s a very slow recovery,” he said. “The world is not in a situation where it’s easy to get out of too much debt, too much leverage. It takes a long while.”
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