Euro architect: ECB knew of tensions

Euro architect calls for responsibility
Euro architect calls for responsibility

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Euro architect calls for responsibility 04:09

Story highlights

  • Former ECB executive board member Otmar Issing says they were aware of tensions in the euro
  • Issing flagged up the risks associated with using a common currency across such divergent economies
  • He argues Greece should default for the long term benefit of the common currency
One of the architects of the now-stricken euro says the European Central Bank was aware of tensions in the common currency which could lead to problems.
Professor Otmar Issing, now the president of the Center for Financial Studies in Frankfurt, was at the heart of the ECB when the common currency was introduced in 1999.
Issing, an ECB executive board member from 1998 to 2006, flagged up the risks associated with using a common currency across such divergent economies. He says it was known to be an "experiment" which could lead to a crisis.
"We petitioned Jean-Claude Trichet [ECB president from 2003 to 2011] with graphs and papers showing that unit labor costs were diverging in a dramatic way," Issing told CNN. "This was something that was known."
Issing's warnings have since been thrown into sharp relief, with the eurozone region splintering as some economies stutter and others boom. Unemployment figures released Tuesday, for example, show Germany's unemployment at 20 year lows of 6.8%, while Spain's jobless figures rose to nearly 23%.
Greece -- a country which Issing argues should default for the long term benefit of the common currency -- is currently finalizing its second bail-out. A default on its bonds would make clear the euro "is a club," Issing said. "If we have a club of non-smokers and some of the members start to smoke again, do we say we'll turn it into a smokers club?"
Issing, who was the ECB's chief economist, said: "[These problems] did not happen in the dark of the night, this happened in the light of the day." He added: "A crisis was in the pipeline."
Issing argues the issues faced by the eurozone must be faced at domestic level, with national rules key to implementing region-wide financial targets. He questions if Greece should continue to receive assistance, saying, "Greece was told time and time again, next time if you don't do more, you won't get any money."
Issing also bats away calls for the ECB to play a bigger role in the crisis, by buying up more government debt in the secondary markets, for example. "This involvement of the ECB in politics, and a central bank being involved in politics, means that it is kept in political games...and this is not a role a central bank should take," he said.
The economist is unsure if the countries under the single currency will remain in the club. But he is confident the euro has a future. "I strongly believe, not only believe, I am convinced that the euro will stay, and with a large group of countries."