Tuesday, January 3, 2012

Angela Merkel's economic adviser Weder di Mauro refuses to rule out eurozone break-up

One of German Chancellor Angela's Merkel's economic advisers, Beatrice Weder di Mauro, has refused to rule out a break-up of the eurozone, in an interview published on Thursday.

Beatrice Weder di Mauro
Beatrice Weder di Mauro warned that unless the financial crisis is intercepted quickly, it can lead to a recession in Germany 
Ms Weder di Mauro, a member of the German Council of Economic Experts, said that while the collapse of the single currency would be "bad for everyone involved", it cannot "be completely excluded".
When asked about a potential split, the 36-year-old Swiss economist told Germany's Bild.de: "That would be bad for everyone involved - but not completely excluded. The policy has been trying for almost two years to contain the crisis and to draw firewalls. However, these walls are not rich yet."
She also warned that unless the financial crisis is intercepted quickly, it could lead to a recession in Germany, with the economy contracting 0.5pc, and leading to an increase in unemployment.
"[We need to] get the crisis under control quickly now," Ms Weder di Mauro said. "Then the German economy in 2012 is expected to grow by around 0.4pc. But [if] the crisis should lead to zero growth in world trade, a contraction of the economy by 0.5pc is possible. Then, jobs [would be] in jeopardy."
The comments are likely to add further pressure on Ms Merkel, who has repeatedly refused to entertain thoughts of an EU collapse, even stating last month that "it's never going to happen".
"The crisis was initially underestimated [by politicians] and too little was done. Now they sometimes cannot act as fast as they want. This is a problem, because the markets are nervous and impatient," she said.
"Some countries have taken part and individuals over the years [have] too much debt. The banking crisis has also driven the national debt. Now the fear is great that they cannot repay the debt.
"We need a triad: over-indebted eurozone nations must submit to a long-term insolvency rule. The others must undertake to reduce debt and stabilize the government budgets. With a debt settlement pact, the debt ratios may fall below 60pc over 20 years. This requires that the short-term interest rates are pushed through [with] mutual guarantees to a realistic level.
"If we succeed with a debt settlement pact, to stick together to stabilize the euro, no significant losses are expected. Failing that, consequences and costs are incalculable."


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