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Otmar Issing’s new book on the euro crisis


We well remember when the über-bailouter of the Financial Times Wolfgang Münchau claimed that except some old economy professors like Otmar Issing nobody in Germany would like to abolish the euro. According to Münchau the euro can be saved only via a fiscal and a banking union. The response to Münchau’s post could be seen in 75 pages of German readers’ comments, who were by 80-90% against Münchau’s view.

Otmar Issing, the former chief economist of the ECB and one of the “fathers of the euro” is going a publish a book with the title “How to save the euro and enforce Europe”.

The following interview shows the content of the book and explains why it is possible to save the euro without a fiscal or a banking union.


An short english transcription of the interview with Otmar Issing:

Issing is more than ever worried about the euro.
Question: Is the financial crisis the main reason of the euro crisis ?

“No, the financial crisis has only accentuated the already existing problems in the euro zone. There are three main areas of problems:

1) Labour costs in the southern countries rose after the euro introduction by 30%. At the euro introduction Germany had a relatively strong currency and high real interest rates. Over the years Germany had to work hard to get out of these problems via low or no wage increases.

2) In 2003 Germany and France decided to violate the Stability and Growth (Maastricht) pact and organized a majority of countries to support this violation. This was a devastating signal and actually killed the pact.

3) The extreme price rises for real estate, especially in Ireland and Spain, which created a banking crisis and then a crisis of the public finances.

The crisis had to come sooner or later. The global financial crisis only caused the outbreak of the euro crisis.”


Question: Many accuse the markets to speculate against the governments ?

This is no speculation, but the natural reaction of investors, who try to get rid of bonds of a government, that all of the sudden says: “Our deficit is instead of the announced 3.7% now over 13%.”


Question: Does it make sense to dare more Europe ?

As Martin Feldstein said: “With the introduction of the euro, Europeans have got many problems that they would not have if there were no euro.”
On the other side one must ask, what if Europe did not have the euro ? I remember 1992 when the italian Lira fell in a short time by 30% against the German mark. At the time this led to big problems in European trade.

Question: Does Merkel’s concept of “liability and control” make sense ?

 To have a bit more control, means also a bit more liability. But Germany will not get out of this liability, if it is too big. Other governments often only promise but do necessarily not hold the promises.

How does an effective euro crisis management look like ?

The German government needs to make clear what two things will not happen in the foreseeable future: Namely a political union and common liability.
If Spanish banks have problems , then the Spanish state can get money from the union, but it is not possible that the union gives money directly to the Spanish banks without controlling what happens to the money and without liability of the Spanish state. Each problem case like this one has to be treated in an isolated way and we should clearly stipulate where the end of the economic help is.

Question: What do you respond to people who want to return to the German mark ?

Unfortunately we understand more and more why people want to go back to the German mark. It is an illusion to think that we would better off with a German mark. We should concentrate our efforts to restore the euro as what it was thought, a robust currency, an independent central bank which only fulfills her mandate. Politics has to do the homework and should not mix in monetary policy.

Question: What do you think of the sentence “If the euro fails then Europe fails” ?

This sentence is only an argument of politicians to continue the bailout of some nations. However, if the euro is completely abolished, then we would risk the European integration process.

Question: But you would allow that some parts of the chain split off ?

Politicians in Greece do not fulfill their commitments. This risks the commitment of other countries, like e.g. Portugal. Then it is better that Greece leaves the euro. Weak countries should be able to leave the euro.

Question: Has the euro fulfilled its promises ?

The ECB has fulfilled its commitment of price stability, even better than in the German mark period. Politics has not fulfilled the commitments. 11 out of the 17 countries are trying to get around the No-Bailout clause. The No-bailout clause is the basis of the euro, which means that no country assumes responsibility for other countries. Which means by counter-position that every country is responsible for the politics it does. Check here for his book.

Are you the author?
George Dorgan
George Dorgan (penname) predicted the end of the EUR/CHF peg at the CFA Society and at many occasions on and on this blog. Several Swiss and international financial advisors support the site. These firms aim to deliver independent advice from the often misleading mainstream of banks and asset managers. George is FinTech entrepreneur, financial author and alternative economist. He speak seven languages fluently.
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