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New Jersey - The 2011 Nobel Economics laureates offered a
grim outlook Monday for the future of the euro, saying the common currency will
have a hard time surviving without a central fiscal authority.
Christopher Sims, a Princeton economist who shared the prized with New York University's Thomas Sargent, said he has long been skeptical about the single currency created under the European Monetary Union.
"I wrote a paper a few years ago on the precarious
fiscal foundations of the EMU," Sims said at a news conference at
Princeton with Sargent hours after the Nobel announcement.
He said that "the euro was founded with a central bank
but no unified fiscal authority" and that this "made it extremely
unusual and raised questions about what would happen when the need for fiscal
and monetary coordination arose."
Sims said the eurozone nations, struggling to bail out
debt-ridden weaker members, "will have to work out a way to share fiscal
burdens and connect fiscal authorities to the ECB," the European Central
Bank.
"Right now none of those connections are clear... and
the prospects for the euro are dim."
Sargent echoed those remarks, saying that the eurozone
problems mirror in some ways the issues faced in the early days of the United
States before the establishment of a central bank and federal government with
taxing power.
Sargent, who coincidentally is teaching with Sims at Princeton in the current semester, said that in the 1780s, the United States had "a weak center that can print money but can't raise taxes."
The problems were eased, he said only after the constitution
was written which "gives the federal government the monopoly to raise
taxes" and establish a coordinated trade policy."
Sims argued that the structural problems of the euro mean
that the financial woes may not be solved by kicking out weaker member states.
The notion "that things will get settled in the euro only if some weak countries leave is unrealistic," he said.
"It's in no sense a cure for the problems that face the
euro."
