The Eurozone crisis will flare up again, and a new phase of crisis management will occur before the year’s end according to former European Central Bank chief economist Juergen Stark.
A year after ECB President Mario Draghi said that he would do whatever it takes to ensure the Euro remains intact, Stark told German newspaper Handelsblatt that he fears the ECB will soon need to support France by buying its government bonds.
Stark conceded that Draghi’s “whatever it takes” speech in London had calmed financial markets. “But I doubt it is a lasting calm,” he said.
Stark was a major figure at the ECB and his resignation in 2011-which was thought to have been a result of a disagreement over the Central Banks buying of government bonds- surprised economists.
Stark said the bond buying program is expected to be called into action for heavily-indebted countries such as Italy and Spain. “But pressure will mount for the instrument to be used in France as well,” Stark told Handelsblatt. The bank could even come under pressure to activate the program without it being attached to a strict program of fiscal reforms.
Some economists however challenge Starks view.
“The dire predictions that all would end in tears two years ago were wrong. They were wrong one year ago; The European Central Bank will not commit suicide by letting the euro founder. One year ago, Draghi made that plain and the results of his commitment are spectacular,” said Holger Schmiding, the chief economist at Berenberg Bank.
Unemployment continues to increase, debt levels continue to mount and any hint of weakness in the region often sends the Euro down against its peers. Political instability continues to plague Spain, Portugal, Greece and more. Draghi may have halted the Euro’s collapse but the results of what has come after his pledge have hardly been spectacular.
Stark said a sustainable solution to the crisis was not yet in sight and that Draghi had just bought Euro zone governments some time. “But that time remained unused,”
Euro (EUR) Exchange Rates
As of 13:00 pm
The Euro/US Dollar Exchange Rate is currently in the region of: 1.3291 >
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