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Euro was a mistake, says Fed ex-chair Greenspan

The Hague -  The establishment of the euro was “a mistake”. However, now that the single currency is a fact, it is “doubtful” that the eurozone could be disentangled.

This was said by former US Federal Reserve chairperson Alan Greenspan in a recent interview with the Dutch financial newspaper Financieele Dagblad.

European leaders’ establishment of the euro was not driven by economic considerations, Greenspan said, but rather by political ones: “The destruction in two world wars on European soil was the dominant motivation in their eyes. They wanted a coin which could unite people.”

However, the eurozone was divided by culture right from the beginning. “They thought that the Italians would behave like Germans if they both were part of the euro. That was from the first day not the case.”

In the process Greece, Portugal, Spain and Italy submerged themselves in debt and got away with it because of the worldwide economic boom. The crisis of 2008 changed that.

According to Greenspan, European political integration is the only way forward. If that happens, the problems with the euro will go away fairly quickly.

In the meantime, the sooner Greece exits the eurozone, the better. “They entered it fraudulently and should never have been part of it.”

Merkel with her back to the wall

Greenspan said he did not expect a Grexit (Greek exit) to lead to the breakup of the eurozone. “It does not mean that there won’t be big problems for these countries. The Germans do not see how they will be paid back. With good reason: they will not be paid back. The same applies to other moneylenders like the Netherlands and Luxemburg.”

He sees the enormous pressure on German Chancellor Angela Merkel, who he thinks is standing with her back to the wall. “Merkel is very worried about the politics of the euro crisis. She fears that the D-mark will be valued upwards very strongly if we go back to the old currencies. German export surpluses and jobs will then vanish. In the light of the political situation in Germany, that is an unsure scenario.”

About the USA, Greenspan opined that the country is almost a Greece, but not quite. People’s entitlements, health and social security payments are becoming unaffordable. These need to be cut drastically, but politically this is a difficult step, he said.

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