Alan Greenspan, the former Federal Reserve chairman, told CNBC he's "quite concerned" about the looming "fiscal cliff" and the inability of legislators to compromise to reach a solution.
Greenspan said in an interview on "Power Lunch" that the two sides need to find compromise to address the automatic tax increases and spending cuts that kick in at the end of the year.
While the amount of division in the political system is nothing new, Greenspan said "what has changed is they don't talk to each other."
The former Fed chairman said the sides need to compromise, "not principles, but how you implement them" so the economy can avoid the effects of going over the fiscal cliff. (learn more).
Political change is needed in Europe, where Greenspan doesn't "see any closure" to the ongoing debt crisis.
"The only solution is a political consolidation," Greenspan said. "I don't believe you can have 17 welfare states where some central authority is controlling the fiscal affairs. It's only if you consolidate the whole system that the system will work."
He added, "What we're doing now is substituting central bank credit for the fiscal deficits of the individual countries."
Greenspan also weighed in on recent declines in the U.S. stock market . "Earnings now are turning and historically that has always had an impact on prices," Greenspan said.