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Roubini’s Sanchez: Euro’s Creators Knew It Was Flawed

Monday, 4 Jun 2012 | 7:07 AM ET

Europe’s single currency was faulty from the start — and its creators knew it, Gina Sanchez, director of equity and asset allocation strategy at Roubini Global Economics, told CNBC.

Political Will in Europe has Fallen by the Wayside: Strategist
Gina Sanchez, director of equity and asset allocation strategy at Roubini Global Economics, told CNBC, "One thing you have to remember about the European Union is to bring together countries in order to keep peace in the region, not necessarily to create an economic union and the architects of the EMU knew that the euro as a concept was flawed."

“The architects of the European monetary union knew the euro as a concept was flawed, but the idea was, if there is enough political will, we can get past those flaws,” Sanchez told CNBC’s “Squawk Box Europe”on Monday. “As it turns out, that political will has fallen by the wayside.”

Sanchez said Europe’s leaders deliberately overlooked conceptual difficulties with the euro , because when the idea was first discussed in the late 1980s, maintaining peace in Europe was still considered paramount.

“I think one thing we have to remember is that the purpose of the European Union was to bring together countries in order to keep peace in the region, not necessarily to create an economic union,” she said. “If you look back at what was said around the launch of the euro, the whole purpose really was to ensure continued peace. There definitely was peace at the time, but there was also the threat at the beginning of that time period from the Soviet Union — we were still in the Cold War era.”

Sanchez said Europe’s leaders of the time were also concerned with the need for the Union to be “large” in order to compete with massive powers such as the Soviet Union.

She added: “It has been a relatively peaceful time, and the need to be large right now isn’t necessarily that great.”

Last Wednesday, the European Commission released a report suggesting the euro zone should increase its financial integration by moving towards a “banking union” and use its permanent bailout fund, the European Stability Mechanism, to directly recapitalizeEuropean banks .

Gina Sanchez is a CNBC contributor and works alongside Nouriel Roubini, the economist famed for predicting the 2007/08 financial crisis.

—By CNBC.com’s Katy Barnato

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