As the Eurozone debt crisis threatens banks and potentially the global economy, former German central banker Axel Weber said he “fears” financial conditions will have to deteriorate more in
Meanwhile, he said, "Europe needs to improve the probability of successful crisis management."
Speaking at the Chicago Council of Global Affairs, Weber said policy makers need the political cover of an emergency to take action. "Things have to get worse before they get better," he said. "If you act swiftly in the middle of a crisis people" appreciate the need for urgent action.
He described recent
As investors remain reluctant, governments must pay high interest rates or offer guarantees so struggling countries can get the funds needed to operate.
Weber is a visiting professor at the
“The debt problems of countries like Greece have become a problem for all the other countries” in the Eurozone, he said. Even France has been impacted, and along with
While he said he thinks "they can save the union," the long-term structure needs to be altered. Weber said it is deficient because it merely revolves around a common currency. Because there are no common rules about how much countries can spend or tax, each country has behaved independently while still enjoying the benefits of the euro. Those less frugal can impact those that have been more disciplined.
Weber noted, that Germany has remained competitive globally through practices such as keeping wage increases at about two percent, while Greece has failed to compete and grow because the country has increased pay about four percent.
Ultimately, Weber thinks there must be shared fiscal practices so that some countries don't spend excessively and rely on more frugal companies to provide aid later. He envisions a two tiered system with the current Eurozone "a training ground" for countries that wish to get into a fiscal union with standards for stability.
But, he said, that "is not around the corner" and will take years to get there.
Meanwhile, the bailout has had a sharp impact on Germany, already. Weber said a couple of years ago Germany's debt to GDP was a sound 64 percent. But two years into the bailouts of countries on the periphery of Europe, debt has jumped to 84 percent of GDP. Weber said in the past it would have taken 15 years for debt to mount so dramatically.
"The numbers are moving up fast," he said.
If Germany were to guarantee the debt for the
While hedge fund manager
All countries would be responsible for guaranteeing the debts of others, and Eurobonds would bring the cost of borrowing down for all, said Weber. Eurobonds, he said, could lead some countries to borrow easily, and ignore their debts without "better fiscal behavior. They would lead to more debt and more risk."