Euro is ‘house of cards’ ready to fall

THE euro is heading towards collapse, one of the architects of the European single currency has declared.

Professor Otmar Issing, the European Central Bank’s first chief economist, warned that the EU’s monetary system needed an urgent overhaul.

“One day, the house of cards will collapse,” the German economist said.

Prof Issing blamed the multi-billion bail-out packages to debt-hit EU nations by the Frankfurt-based ECB for putting the single currency at risk.

Speaking to financial journal Central Banking, he said: “Realistically, it will be a case of muddling through, struggling from one crisis to the next.

“It is difficult to forecast how long, but it cannot go on endlessly.

“The Stability and Growth Pact has more or less failed.

“Market discipline is done away with by ECB interventions. So there is no fiscal control mechanism from markets or politics. This has all the elements to bring disaster for monetary union.

“The no bail-out clause is violated every day.”

Prof Issing said that the central bank had “crossed the Rubicon” as a banking regulator, placing its own integrity at risk.

“The ECB is now buying corporate bonds that are close to junk and the haircuts [losses sustained] can barely deal with a one-notch credit downgrade,” he said.

“The reputational risk of such actions by a central bank would have been unthinkable in the past.” Professor Issing criticised the first Greek rescue in 2010 as little more than a bailout for German and French banks, saying it would have been better to eject Greece from the euro as a lesson to other nations.

Greece should have been offered generous support, but only after it had restored exchange rate viability by returning to the drachma, he said.