Europe, Don't Waste a Good Crisis: Jim O'Neill

Jim O'Neill, the Chairman of Goldman Sachs Asset Management said that the super cycle story that is China and India is so appealing he could hardly bring himself to discuss the problems facing the euro zone as the year started.

But when the man who coined the phrase BRIC for emerging markets Brazil, Russia, India and China came into CNBC’s London offices to discuss India with our colleagues at CNBC TV-18 in Mumbai, we demanded he give us his take on the euro zone’s attempts to put the sovereign debt crisis behind it.

“It is very hard for Europe to talk with one voice. I think the more intriguing thing behind the tone today is that when you have a week like last week, when European markets do so well, the pressure for a coordinated, coherent stance, particularly in Germany, seems to fade away” O'Neill said.

“So now they shift priority to another dilemma about the underlying issue, and I guess that’s the way it is. For us to expect the kind of clarity of purpose and consistency that you'd get from the US on something like this, you’re not going to get it,” he added.

O'Neill believes euro zone policy makers should not let a good crisis go to waste.

“Here is a chance for Europe to improve the structure of EMU (European Monetary Union), because in my opinion this is not a debt crisis, it's a crisis of structure and governance,” he explained.

eu us summit 2010 lisbon
eu us summit 2010 lisbon

Get Your Act Together

“The Europeans have to get their act together, we can see, that Germany doesn't really know what to do," he said. "That's going to be the solution. I suspect that what is really happening behind the scenes is that the Germans are negotiating with other countries' leaders…for greater institutional support for them, and a stronger stability pact.”

The idea of a common Eurobond – which Germany rejects for fear the creditworthiness of fiscally sound euro zone members may suffer - makes a lot of sense, said O'Neill, who added that if you want a market where investors can finance things in the same way as the US then a Eurobond is inevitable.

“That, together with a stability pact that actually means something, where people have agreements and stick to it, and there's some kind of punishment when they don't. They're the kind of parameters for a sensible and persisting European monetary union,” he said.

“In addition - and here’s the most controversial part in my view, compared to others - the idea that the ECB can be completely independent from all aspects has been shown to just not be realistic," O'Neill said.

"Apart from the fact that the ECB doesn't really recognize it, but that has to be part of the unified program. The Fed's done it in the context of the US challenges. And you have to have all operators working together, so that's the game plan eventually, quite how quickly we get there, we'll have to see,” he said.