GERMANY IS more at fault for the euro crisis than countries such as Ireland and Greece because of its low inflation rates, a former German cabinet minister said at the weekend.
Heiner Flassbeck, a former minister of state at the finance department in Germany and chief economist at the United Nations Agency for World Trade and Development, was speaking at the Kilkenomics economics and comedy festival in Kilkenny.
“They are getting too much blame,” he said of the countries known as the PIGS (Portugal, Ireland, Greece and Spain).
Germany had violated the European Central Bank’s 2 per cent inflation targets more than other countries like Greece, thereby affecting competitiveness, he said. He said this meant that products from Greece could not compete with German products.
“That is the big problem. If you are not tackling that problem of a gap of competitiveness of 25 per cent then we have no chance to save the euro,” he said.
This was “put under the carpet” in Germany and nobody wanted to talk about it, he said.
The most socially and politically acceptable way to tackle the crisis was if Germany over 10 to 15 years increased wages to the cost level of other countries, he said.
“France should side with southern European countries but it prefers to be on the same side as Germany – that is the problem,” he added.
It was “incumbent on policy makers in the euro area to keep the euro together to avoid knock-on ramifications,” UCD economist Prof Karl Whelan told an audience at a session on banking yesterday.
Questions over the future of the euro were the only risk to deposits in Irish banks, he said.
“If people in Greece woke up on Monday to find what is in their deposit account was not in euro but in drachma, that would be an event to worry about,” he said.
The euro was supposed to be fixed but if Greece left, people would ask where is next, he said. “That is the risk to people’s deposits here,” he added.
Earlier economist David McWilliams told an audience during a session on investment that if the Greeks left the euro “people would say if it can happen there it can happen here” and would take their money out of the banks.
Mr McWilliams said when asked by friends of his mothers for advice on where to deposit their money he told them to do what he did, put a “modest amount of money” into a Swiss bank account.
“I’m not advocating it, I’m just telling you what I did,” he said.
However, Prof Whelan warned that if the euro fell apart governments would start to introduce capital controls and taxes on people moving money around.
He also said the idea that the head of AIB should be paid civil service rates was not the best idea because of the complexity of the job and the enormous sums of money involved in the bank.