Press

While the appointments in Greece and Italy avoided snap elections that may have created even greater turbulence in financial markets, governments made up of non-political experts can't make up for the single currency’s flaws, said Philip Whyte at the CER . ... "There's a deep flaw in the structure of the common currency and that's not something that technocratic governments can do anything about ... Monetary union without fiscal and political union is inherently unstable."

"Greece has been asked to attempt the impossible," said Simon Tilford, chief economist with the CER in London. "The strategy, the fiscal austerity program over the last two years, has failed and has pushed the economy into a very deep slump. They are now being asked to take more of the medicine that has failed to treat the disease and has actually become part of the problem."

In a CER Simon Tilford and Philip Whyte said: "The punishing (and self-defeating) economic adjustments imposed on debtor countries contrasts with the self-righteous complacency shown in the creditor countries."

 "It is now clear that a currency shared by fiscally sovereign member-states is more vulnerable to losses of confidence than a monetary union that is more fully integrated," said the CER in a paper published last week.

The Greek economy is in free fall, having contracted 15 per cent under existing austerity measures, said Simon Tilford, chief economist with the CER in London. ... ''Its economy is three times as big as the Irish, Greek and Portuguese economies put together,'' said Mr Tilford. If Greece leaves, it will make departures by others much more likely; and if Italy left, ''France would be under huge pressure ... 'France assumes that if Greece and one or two other states left, that its status as a core part of the eurozone would be secure. But that's far from clear.

"The Greek economy is in free fall, having contracted 15 per cent under existing austerity measures", says Simon Tilford, the chief economist with the CER in London.

"The slowdown in economic activity is compounding investors' concerns about debt sustainability," said Simon Tilford, chief economist at the CER in London. "In the south of Europe we have very high borrowing costs and no economic growth. That's a lethal combination."   

But simply creating stricter rules to enforce discipline will not solve the problem, a new study by analysts at the CER claims. In a report published today Simon Tilford and Philip Whyte argue that the crisis not a result of the "errant behaviour" of a few countries and that monetary union held together by a set of rules rather than full fiscal union is "deeply unstable". They write: "The eurozone will remain an unstable, crisis-prone arrangement unless critical steps are taken to place it on a more sustainable institutional footing.

"Households are not spending, firms are not spending, and governments are making cuts," said Simon Tilford, chief economist at the CER in London. "There is no doubt that fiscal austerity is exacerbating economic weakness." ... Tilford points to Germany's ability to control wage growth in the past decade as the primary factor in relatively strong economic growth numbers through early this year, a phenomenon that saw corporate profits soar as a percentage of GDP but likely saw those profits poorly distributed.