Interview with Prof. Dr. Teodoro Cocca: Euro on the brink

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Almost a year has gone by since our last interview in September 2011. The debt crisis, and especially the euro crisis, are still omnipresent. In the meantime the contagion has spread to Spain and Italy, who are in the throes of a public finance and banking crisis. Optimism in Europe appears to be waning and resignation is spreading. We hear warnings such as those issued recently by IMF boss Lagarde or the investor George Soros that the euro is in danger of collapsing in three months. How long do you give the euro and what would happen were it to collapse?

Prof. Dr. Cocca: The moment of truth is edging ever closer. The situation will become critical if Italy elects a new government and the markets lose trust in it. At present the Mario Monti government is still enjoying confidence, although this is fast disappearing. As regards the future of the euro, all roads lead to Rome. Whether the euro survives in its present form rests with Italy. Where possible the euro and the existing hopeless crisis management strategy will be held on to for so long that in the end everyone will be pleased if the euro collapses. The risks of existing rescue measures are increasing so rapidly that you have to ask yourself whether the collapse of the euro, which today could still be managed in an orderly fashion, might be a better option.

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Interview with Prof. Dr. Teodoro Cocca: “The system is already no longer self-sustaining“

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The debt burdens of many Western industrialised nations have risen enormously during the economic and financial crisis due to bank bail-outs and economic packages. Now a debt crisis is looming. Many countries are no longer able to obtain funding in the capital market and the central banks are stepping into the breach as the lender of last resort. How do you as an economist view this paradigm shift where central banks are suddenly buying massive amounts of government bonds from ailing states?

Prof. Dr. Cocca: It is a declaration of bankruptcy. It shows that in reality the system is already no longer self-sustaining. Without the (highly problematic) intervention of the ECB, many euro countries would already no longer be able to tap the capital markets which would mean that today these countries would already be insolvent. The measures taken by the ECB are also putting the stability of the central bank itself on the line by taking the risks of highly indebted countries onto its balance sheet. Moreover, it robs the ECB of its greatest weapon: its independence.

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