The former President of the European Central Bank speaks to Jay Elwesby Jay Elwes / August 21, 2013 / Leave a comment
JE: Is the eurozone crisis now abating?
JCT: We have had already three acute episodes in the euro area crisis and now we are not in an acute episode. But I would say this is no time for complacency and we have a lot of appropriate reform to conduct, including of course at the level of each country and governance of the euro area as a whole. Yes—at this stage we are not in an acute episode of the crisis of the Euro area.
Let me mention that I make a difference between the euro as a currency, which has never been in question in all the crisis since 2007-8, and the euro area, the grouping of the 17 countries and as of next year 18, which has been in difficulty at several times, and is not experiencing presently an acute episode but has a lot of hard work to do.
JE: Do you think the euro area faces a continuing cycle of emergency summits, bailouts and haircuts?
JCT: No I would say there are four objective reasons why the tail risk of dramatic events in the Euro area has considerably alleviated.
First reason, a lot of adjustment has taken place in the countries that were under high pressure by the market. If I take Greece, Ireland, Portugal, Spain and Italy which were the five countries under stress—I put Cyprus apart—you could say that their current account deficit in 2008-9 was about 8 per cent of GDP and we are probably over the last 12 months very close to zero, perhaps less than one per cent to be sure. And that of course is the first reason. The market is seeing that we are in a totally different universe to that standpoint: vulnerability of the external current account.
Then we have a lot of reform in the euro area: the new reinforced Stability and Growth Pact; the Macroeconomic Imbalance Procedure; the Fiscal Compact; the start of the setting up of the Banking Union—all of this is a very strong second reason.
Third reason is very political: it has been demonstrated that there was no democracy in Europe that wanted a change in the nature of the euro area, by expelling some countries or by countries desiring to leave and that has been demonstrated both in Athens and in Germany, where a lot of observers were thinking that some forces in…