Greece was not ready for euro admits ex Bundesbank head

Ernst Welteke
Image caption Mr Welteke said growth as well as austerity was needed to solve the eurozone crisis

Greece should not have joined the euro, a former head of the German central bank, who was central to eurozone policymaking at the time, has said.

But Ernst Welteke, who was Bundesbank president from 1999-2004, told the BBC that none of the eurozone's problems would be solved if Greece left.

He added there should be greater transfer of wealth from richer parts of the eurozone to poorer parts.

He said he was confident measures were in place to ensure the euro's survival.

"The euro is not in as big a danger as is often recorded," Mr Welteke told Business Daily on the BBC's World Service.

"The euro has been stable [for] 10 years, inside and outside the European Monetary Union (EMU)."

Strong union

He said that, in hindsight, it was clear that Greece was not ready for the euro.

"We can say that Greece should not have joined the EMU, but that doesn't help."

He said Greece only accounts for 3% of the economic output of the eurozone, so "if Greece leaves the EMU then monetary union will still work."

"But I don't think Greece leaving will solve any problems."

The country's new currency would depreciate, meaning Greece would struggle to repay its euro-denominated debts, he said. This would cause big problems for Europe's banks that lent Greece the money.

Growth needed

Mr Welteke said the current problems facing the eurozone were due to a debt crisis in southern Europe resulting from the financial crisis.

He also highlighted deeper problems, such as trading imbalances, with some countries running current account surpluses and others running deficits.

"Austerity alone is not the solution... without more growth the problems cannot be solved," Mr Welteke said.

"There have to be structural reforms in all countries, not just in the labour market but in tax administration [for example].

"In the end... monetary union is a solidarity union; there is no question [there should be a greater transfer of wealth from Germany to struggling countries].

It was the job of politicians, not the European Central Bank (ECB), to resolve these problems, he said.

The ECB should go back to focusing on managing inflation after its recent moves to provide cheap loans to boost liquidity in the banking sector.

Bankers to blame

But Mr Welteke, who resigned from the Bundesbank in 2004 in a row over a luxury hotel bill, said it was important to remember who caused the crisis in the first place.

"The problems occurred after the financial crisis and the financial crisis was not the result of undisciplined politicians," he said.

"It was the result of people living, working and earning a lot of money in the financial centres.

"For 10 years, the financial markets did not differ between lending money to Germany or lending money to Spain, Portugal and Greece.

"If there is a creditor and a debtor, both are responsible for the credit."

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