People in Many EU States Think Euro Responsible for Weak Economic Growth - Prof

Sputnik: What's your take on the current status of the euro?

Nicola Borri: The euro is in peril and at a crucial stage of its short life. When a number of European countries decided to adopt a single currency, the idea was that a common currency would have helped not only trade and economic growth, but also strengthen political cohesion and ensure peace in Europe. Instead, in many countries now large parts of the populations think that the Euro is responsible for weak growth, rising inequality and poverty and tensions between different countries, for example, richer and poorer countries, are rising. It's a crucial stage because only significant changes in European institutions could save it.

Sputnik: Have the economies of the countries that adopted the euro won or lost as a result?

Nicola Borri: In my opinion, countries benefited from the Euro. First, borrowing rates dropped also for poorer countries. Second, poorer countries were able to borrow more than in the past. Third, the common currency and a strong common central bank were able to limit the damages of the financial crisis.

Sputnik: What's your take on the financial status of the Eurozone in light of fiscal difficulties in Italy? Do you agree that the economies of Italy and Greece were stronger without the euro?

Nicola Borri: I disagree with the statement that economies like Italy, or Greece, were stronger without the euro. The euro brought huge advantages to these economies, with lower borrowing costs and monetary credibility. Unfortunately, these economies did not use this opportunity to reform their weak economies. The problem of these economies is structural: low level of education of the workforce, low competition, and high taxes on labour are responsible for the very low growth rate of productivity. This is the real problem of these economies.

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Sputnik: Which countries tend to benefit and which appear to be losing because of the euro? Would they be better off using their own currencies?

Nicola Borri: Probably, the countries who benefited the most so far are the ones in the euro-periphery: like Italy, Spain and Greece. However, if these countries do not address their structural problems (see my point above), they could also be the one who will lose the most in the future. In fact, having their own currencies could give them a quick temporary fix to the low productivity problem by devaluing their own currency and increase exports. However, currency devaluation is a dangerous instrument to use. Markets and investors learn quickly and anticipate devaluation policies so that usually inflation starts to rise, as we see for example in Argentina.

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Sputnik: How would a switch to the euro affect the Balkan states that are looking to join the European Union?

Nicola Borri: The Balkans states would enjoy a similar experience to that of countries like Italy, Spain and Greece right after the adoption of the Euro, in 1999. This means dropping borrowing rates and large inflows of foreign capital. However, Balkan states should also learn from the past mistakes of countries like Italy, or Greece, and use these resources to improve the productivity of their economies.

The views expressed in this article are those of the speaker and do not necessarily reflect those of Sputnik.