Time Running Out for the Euro Zone: Rosenberg
The sand in the hourglass for Europe to solve its debt crisis is running quickly and the chances of a successful resolution grow slimmer by the day, David Rosenberg, chief economist at Gluskin Sheff and Associates told CNBC’s “Worldwide Exchange”.
Greece goes to the polls again this weekend following the failure of May elections to provide a decisive winner amid growing support for the populist Syriza party, which has stated it will renege on its bailouts terms and conditions agreed by the previous Greek government.
This has thrown the entire bloc into a heightened tumultuous state with the once unmentionable talk of a disintegration of the single currency now being cited by numerous experts as the most likely and even preferable solution to the mess.
“There is no history of an economic union surviving without a political and fiscal union and the problem in the euro zone is that if you want to go through that route you have to pass legislation in all these different countries. It’s very complicated and time is running out. To embark on this path will probably take years,” Rosenberg said.
Spain sought a bailout of its banks at the weekend but opacity surrounding the deal has added to uncertainty as the markets reacted negatively, of the latest bailout's ability to contain the crisis.
Rosenberg was pessimistic about the long term economic viability of Greece whatever the election result because the problem had now spread to Italy and Spain.
“It is not clear we’ll get a resolution, whatever party wins we don’t know what sort of coalition they will put into place and it will be very fragile in any case.
Let’s assume the right wing prevails and they live through the bailout terms; the reality is that the economy is still imploding and they will require even more bailouts in the future,” he said.
He added that Germany would not give the rest of a Europe a “credit card with no limit” to resolve the problem.
“All the pressure is on Germany, meanwhile Germany’s done quite a bit with all the guarantees and bailouts they’ve already put in 25 percent of GDP into all these rescue packages. If you want to become United States of America then be prepared to sacrifice your sovereignty. I just don’t see it happening,” he added.
He added that the lack of growth in much of the euro zone area meant servicing the debt now being accumulated by its most vulnerable members would be impossible.
“These countries simply cannot service their debts and can’t service them in a period where nominal GDP growth is flat and that’s really the overriding problem that hasn’t been resolved. Just throwing more debt is not a durable solution. These countries dramatically require currency devaluation,” he said.