Eurozone breakup 'out of the question'

08:57, May 28, 2010      

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Former Bundesbank President Helmut Schlesinger said the euro's slide hasn't left it at an unnaturally low level and the breakup of Europe's 16-nation currency union is out of the question.

"The euro isn't in danger," said Schlesinger, who ran the German central bank from 1991 to 1993. While the pace of the currency's decline "did give cause for concern," its level "is by no means catastrophically low," he said.

Europe's single currency has plunged about 20 percent against the dollar in six months as Greece's budget blowout undermines confidence in other indebted nations such as Portugal and Spain, fueling speculation the monetary union could splinter.

The sell-off prompted governments to announce an unprecedented bailout fund and the European Central Bank to start buying sovereign debt. The euro still buys $1.22, compared with $1.17 on its debut on Jan 1, 1999.

Its recent decline - about 8 percent since the start of May - "reflected the extent of the uncertainty on the markets," Schlesinger said. "That was extreme. That has to be contained and is perhaps contained, more or less."

Schlesinger, 85, steered the Bundesbank through the economic shock that followed German reunification in 1990, boosting the bank's benchmark discount rate to a postwar record of 8.75 percent in July 1992 after a consumer-led boom drove inflation as high as 6.3 percent.

The Bundesbank's tight monetary policies exported recession across Europe as interest rates went up in countries that pegged their currencies to the deutsche mark.

Culminating in the breakdown of Europe's system of managed exchange rates in 1993, the post-Cold War economic tumult redoubled European efforts to forge a common currency. The euro isn't going to disappear, Schlesinger said.

"Bringing about the end of the euro is something that one cannot plausibly conceive of at the moment," he said. "It would involve so many complications, with so much potential for setbacks - including economically - that one cannot, and in my view must not, contemplate it."

Source:China Daily


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