The euro has completely broken down as a workable system and faces collapse with “incalculable economic losses and human suffering” unless there is a drastic change of course, according to a group of leading economists.
By Ambrose Evans-Pritchard, International Business Editor / Telegraph
Europe is “sleepwalking towards disaster”, according to the 17 experts, who warned that over the past few weeks “the situation in the debtor countries has deteriorated dramatically”.
“The sense of a neverending crisis, with one domino falling after another, must be reversed. The last domino, Spain, is days away from a liquidity crisis,” said the economists. They include two members of Germany’s Council of Economic Experts and leading euro specialists at the London of School of Economics, all euro supporters.
“This dramatic situation is the result of a eurozone system which, as currently constructed, is thoroughly broken. The cause is a systemic failure. It is the responsibility of all European nations that were parties to its flawed design, construction and implementation to contribute to a solution. Absent this collective response, the euro will disintegrate,” they added in a co-signed report for the Institute for New Economic Thinking.
The warning came as contagion from Spain pushed Italy’s borrowing costs to danger levels, with two-year yields rocketing 40 basis points to more than 5pc. The Milan bourse tumbled 3pc, led by bank shares. Italian equities have been in freefall since it became clear two weeks ago that the EU’s June summit deal had failed to break the nexus between crippled banks and sovereign states.
The crisis is starting to ricochet back into Germany, where the PMI manufacturing index for July fell to its lowest since mid-2009. Doubts are emerging about the creditworthiness of the German state itself.