Europe faces an important challenge in creating greater awareness of the importance of a stable currency, but to achieve that goal, its citizens will need to grow more attached to the euro, Otmar Issing, former European Central Bank chief economist, told CNBC.
“This has not been achieved so far. There is no emotional link of people to the currency,” Issing said.
Issing, who was on the council of economic advisors at the time of German reunification, advised chancellor Helmut Kohl against the creation of a currency union.
As Germany prepares to mark the 20th anniversary of reunification, Issing said Europe could have prevented the debt crisis it currently finds itself by learning from Germany’s currency union troubles.
“We warned against unemployment in eastern Germany, high transfers, and almost everything we predicted happened,” he said.
As a member of the European Central Bank’s executive board, Issing again warned of the dangers of creating a currency union among a set of countries with widely divergent policies and politics.
“I warned that starting a monetary union before a political union would be putting the cart before the horse,” he said.
“I think the crisis has revealed the weakness of the system. On an almost monthly basis we warned that, for example, the housing boom in Spain would finally end in disaster, that the divergence in unit labor costs would create tremendous problems.”
“This was all obvious, but nobody cared, and finally, the day of reckoning comes,” Issing said.
The crisis had exposed the union’s weaknesses and demonstrated the need for reform, but “there are still very divergent views,” Issing said.