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Euro could collapse in 'three to six months'

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Euro could collapse in 'three to six months'
Photo: DPA
14:18 CET+01:00
The euro will collapse in the next three to six months if nothing dramatic is undertaken to save it, according to a leading German economist, who has called for fast and decisive action.

Gustav Horn, director of the Macroeconomic Policy Institute (IMK) in Düsseldorf, told the business daily Handelsblatt on Thursday one possibility would be for the European Central Bank (ECB) to reduce interest rates for crisis-hit countries down to a more sustainable level.

But he also said the International Monetary Fund (IMF) could step in to help, although he admitted this would increase the influence of the US, Japan and China on European economic matters.

“I give the euro three to six months if nothing happens,” he told the paper.

The ECB action “could happen quickly and would, under current circumstances, not create any danger of inflation,” he said.

It would be preferable to intervention of the IMF, as that “would equate to an admission of the eurozone being unable to solve its own problems,” said Horn.

Other voices are also calling for the ECB to act, with Hans-Peter Grüner, a former advisor to the bank, telling the Handelsblatt an intervention now would save the ECB from having to take action in “secondary markets”.

“But I do not think the ECB should categorically rule out further interventions in secondary markets. Those who speculate against Italy will probably have to deal with the EFSF and the ECB,” he said.

He said the EFSF – the European Financial Stability Facility – rescue fund would be able to stop the debt crisis from spreading if it was leveraged further – and also called for the IMF to contribute to the fund.

Horn's dramatic warning is not the most alarming – last week the weekly Economist magazine said in a comment piece that the currency could have just weeks left.

“Without a dramatic change of heart by the ECB and by European leaders, the single currency could break up with weeks,” it said.

The Local/hc

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