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Difficult for euro to survive without eurobonds:Stiglitz

LONDON | Tue Aug 16, 2011 4:01am EDT

LONDON (Reuters) - The euro will find it "very difficult" to survive without the implementation of a eurobond framework, Nobel Prize winning economist Joseph Stiglitz said on Monday.

Stiglitz, on the BBC's Newsnight programme, said the lack of fiscal room in the eurozone countries worst affected by the sovereign debt crisis will intensify the problem, unless a solution is found.

"Unless some framework like European bonds are promoted, it's going to be very difficult for the troubled eurozone countries to be able to meet their financial requirements."

Stiglitz, who won a Nobel Prize in economics in 2001, said eurobonds could be created with a limit and conditions attached to stop, what he described as, the failure of the present lending system.

"Right now Governments are borrowing from their individual banks and these bonds are being discounted by the ECB."

"In a way, eurobonds are already happening but in a very non-transparent way and with a lot of uncertainty about how the present system is going to continue.

The idea of so-called "Eurobonds" has been fiercely opposed by Berlin, which is fearful such a step would push up German borrowing costs and reduce incentives for weaker euro zone members like Greece to reform their economies.

Stiglitz said Germany would suffer "severe consequences" if troubled eurozone countries failed to repay their loans.

He added that it would be a more beneficial to the survival of the single currency if the Germans, rather than a troubled eurozone country, opted out of the euro.

"It would actually be better for the euro if Germany left because the consequences of restructuring debt if Greece, Portugal or Ireland were to leave would be very great."

"If Europe decides that the only way it's going to continue is through some stabilization or solidarity fund in the form of eurobonds, which Germany doesn't want, than it will be Germany that has to leave," he added.

(Reporting by Stephen Mangan; Editing by Kim COghill)

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Comments (2)
GaryAnder wrote:
The other option is to expell Greece from the Euro. Afterall, they did lie more than once about their economic health and had the assistance of Goldman-Sacks to fudge their books.
Also, Germany has another problem (France did the following too I believe): to keep their debts within the Treaty at 3%, the cities were encouraged to take on debt so the gov’t didn’t have too. Will this municipal debt have to be converted into Eurobonds?
Note: reportedly, last week the ECB -acting like a bad bank for toxic assets- bought 94Billion Euros of debt.

Aug 16, 2011 1:21am EDT  --  Report as abuse
mbm007 wrote:
Sorry Mr Stiglitz, you are talking rubbish. Ok, assuming Germany leaves the EU, together with the money Germany has put in to support countries like Greece, Ireland, and Portugal.

France and all other countries will either collapse under the burden or get all downgraded. Yes, there would be a EU without Germany – but no one would want to be part of it anymore, and the Euro would be hardly worth what it is at the moment with Germany.

Aug 16, 2011 5:17am EDT  --  Report as abuse
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