The economist regarded as the father of the euro, Robert Mundell, said the European Central Bank (ECB) should move aggressively to solve the eurozone crisis.
“The ECB should step up to the plate, and move in,” he told CNBC. ECB President Mario Draghi has said he would “use resources of the ECB to prevent any collapse of the euro area.”
The eurozone should jointly issue a bond that in a first phase includes the stronger economies like Germany, and then it should move to include the weaker economies, he said.
“Gradually, countries could come into it as they get their fiscal things in step,” the Nobel laureate said. “It’ll be like a two-stage process.”
Yields on safe-haven debt like the German Bunds are now at historic lows, while yields on the debt of the riskiest countries, like Italy and Spain, have hit euro era highs.
Mundell, a Canadian, thinks Spain will need a full-scale bailout, and that the agreed bailout of its banking system won’t be enough.
“There is a potential sovereign debt problem for Spain,” said Mundell, whose work on currency areas is seen as providing some of the economic basis for the euro. “And there’s a banking system problem.”
Mundell also said the eurozone should gradually move towards a retirement age of 67 to provide more funding for the retirement system, CNBC reported.
As a critical week for the euro begins, the prime minister of Luxembourg, Jean-Claude Juncker, heightened expectations Monday of a regional effort to lower Spain’s borrowing costs, The New York Times reported.
“We are acting with the ECB. without compromising its independence,” he said in an interview published in Le Figaro and Süddeutsche Zeitung. “When I say ‘we,’ that means the EFSF (European Financial Stability Facility) rescue funds; it’s also to say the 17 governments.”
“No one should doubt the collective will of the 17 countries,” he said.
European Central Bank President Mario Draghi meets today in Frankfurt with U.S. Treasury Secretary Timothy Geithner, who is also due to meet with the German finance minister, Wolfgang Schäuble, to seek solutions to the impasse, The Times reported.
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