Berlin : Former Federal Reserve Chairman Paul Volcker said European officials are lucky that the euro region's first major crisis was sparked by one of its smaller members and he's confident the currency will survive.
"I'm still a believer in the euro," Volcker said in an interview in Berlin on Saturday. The lack of a unified government to back up the European Central Bank is a "structural crack" and "maybe fortunately it's tested with a country as small as Greece, which doesn't present an insuperable financing problem."
The euro has dropped 8 per cent in the past three months as Greece's soaring budget deficit sparked concern it could default and cause the euro region to break up. The euro's founding treaty sets out no rules on how a struggling member nation could be rescued and didn't establish a single finance ministry, prompting billionaire investor George Soros to say on February 28 that the currency "may not survive" the crisis.
The lack of a unified fiscal policy has sparked a divergence of bond yields across the euro region as Greece's crisis worsened.
The extra yield investors demand to hold Greek 10-year debt instead of German equivalents jumped to 396 basis points in January, the highest since 1998. The average gap over the past decade was 34 basis points. The Spanish and Portuguese spreads are about five times their respective 10-year averages.
Greece, which announced a further round of deficit cutting measures last week, managed to sell 5 billion euros (Dh25 billion) of new 10-year bonds on March 4, which Volcker called "a good sign".
At 12.7 per cent of gross domestic product, Greece's deficit was the highest in the 27-nation European Union last year.
A "combination of very strong measures and availability of money" may help solve the Greek problem and stop contagion spreading to other euro nations, Volcker said.
