ECB must 'step up to the plate': Robert Mun­dell

The Pak Banker - - COMPANIES/BOSS -

Robert Mun­dell, the economist known as the fa­ther of the euro, told CNBC that the Euro­pean Cen­tral Bank (ECB) needs to step up to solve the euro zone cri­sis. He said: "The ECB should step up to the plate, and move in. I think that (Mario) Draghi (the ECB Pres­i­dent) has made an in­di­ca­tion that within his man­date, he will use re­sources of the ECB to pre­vent any col­lapse of the euro area. "The prime man­date, as a bank, is to avoid in­fla­tion, to keep price sta­bil­ity - mon­e­tary sta­bil­ity. Another as­pect is keep­ing bank­ing sta­bil­ity: sta­bil­ity of the bank­ing sys­tem, sta­bil­ity of the economies."

Draghi's pledge to do "what­ever it takes" to save the euro helped buoy Euro­pean mar­kets last week - and mar­kets were ex­pected to have a pos­i­tive open af­ter Eurogroup head Jean-Claude Juncker promised lead­ers would take mea­sures tackle soar­ing Span­ish bond yields (re­lated: the world's big­gest debtor na­tions).

United States Trea­sury Sec­re­tary Ti­mothy Gei­th­ner will meet euro zone lead­ers this week to dis­cuss the sit­u­a­tion in the euro zone, a sign that the U.S. is in­creas­ingly con­cerned.

No­bel Prize lau­re­ate Mun­dell is one of the grow­ing num­ber of peo­ple who think Spain will ul­ti­mately need a full bailout, rather than the bailout-lite which has so far been agreed.

He said: "Spain is go­ing to need a bailout. I think it's quite clear.

"The Span­ish prob­lem is there is a po­ten­tial sov­er­eign debt prob­lem for Spain. There's a debt prob­lem for the re­gional struc­ture of the Span­ish sys­tem. And there's a bank­ing sys­tem prob­lem."

Other lead­ing econ­o­mists like Jim O'Neill, chair­man of Gold­man Sachs (GS) as­set man­age­ment, ar­gue that a bailout of the euro zone's fourth-largest econ­omy is not in­evitable.

Mun­dell, whose work on cur­rency ar­eas is cred­ited with pro­vid­ing the eco­nomic foun­da­tions for the euro, said that the cur­rency could still be­come a re­serve cur­rency which could com­pete with the euro, if pro­pos­als for jointly-is­sued Eurobonds go ahead.

He said: "There are tril­lions of dol­lars out there that are avail­able for com­ing into Europe if they could just solve this prob­lem of the south­ern flank of Europe and the weak­ness of the debts of these coun­tries." In­stead of is­su­ing bonds for all the euro zone coun­tries straight away, Mun­dell thinks that the euro zone should start with a jointly-is­sued bond in­clud­ing just the stronger coun­tries, then phase in weaker coun­tries.

"You could start with the stronger coun­tries and grad­u­ally, coun­tries could come into it as they get their fis­cal things in step. It'll be like a twostage process," he said.

Safe havens like Ger­man Bunds are now at his­toric lows, while coun­tries per­ceived as more risky, like Italy and Spain, have hit euro era highs.

Re­tire­ment age is a key is­sue for the whole euro zone, Mun­dell ar­gued. He said that the re­gion should ul­ti­mately move the age at which peo­ple can draw state pen­sions for­ward to 67 to com­bat the de­mands of an ag­ing pop­u­la­tion.

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