The imbalances in the economic strength of euro area countries make the continued function of the single currency area a primary concern, said former US Federal Reserve chairman Alan Greenspan in an interview with the World Gold Council.
He suggests the inequality is largely down to a north/south geographical divide which means the division between the northern and southern EU countries is too big. The bloc’s more prosperous nations such as Germany consistently fund the deficits of those in the south, and that simply can’t go on, said Greenspan.
“The European Central Bank (ECB) has greater problems than the Federal Reserve. The asset side of the ECB’s balance sheet is larger than ever before, having grown steadily since Mario Draghi said he would do whatever it took to preserve the euro,” he said.
“And I have grave concerns about the future of the euro itself… The eurozone is not working”, added Greenspan.
Greenspan who governed the Fed between 1987 and 2006 has consistently been critical of the eurozone. He always said the eurozone was doomed to fail because the effect of the divergent cultures in the bloc has been grossly underestimated.
He once again defended the gold standard monetary system that was widely followed by economies around the world until the 1930s.
“Today, there is a widespread view that the 19th-century gold standard didn’t work. I think that’s like wearing the wrong size shoes and saying the shoes are uncomfortable! It wasn’t the gold standard that failed; it was politics,” Greenspan said.
“I view gold as the primary global currency,” he added.
According to the former Fed chair, investment in gold now is insurance; and it’s not for short-term gain, but for long-term protection.
“We would never have reached this position of extreme indebtedness were we on the gold standard because the gold standard is a way of ensuring that fiscal policy never gets out of line,” said Greenspan.