News Column

European Recovery Slow, Euro Called 'Historic Mistake'

January 23, 2014

Hugo Duncan, Daily Mail

A panic was expected after a Harvard economist declared the euro 'a giant historic mistake' (file photo)

Jan. 23--A top European banker yesterday warned that the region faces a fresh wave of panic as the single currency was branded 'a giant historic mistake'.

Axel Weber, chairman of UBS and former head of the Bundesbank, Germany's powerful central bank, said he expected a number of eurozone banks to fail this year's stress tests. He told delegates at the World Economic Forum in Davos, Switzerland, that the results of the health checks could spark panic on the financial markets and reignite the crisis in the region.

It came as Kenneth Rogoff, a professor of economics at Harvard University in the US, said the creation of the one-size-fits-all euro was 'a giant historic mistake'.

Business leaders also warned that the European economy remained fragile and voiced concerns over 'horrific' levels of unemployment, high taxes and red tape.

Christophe de Margerie, head of French energy giant Total, said: 'Don't take it as being provocative I think Europe should be reclassified as an emerging country.'

Speaking at the WEF's 'Is Europe Back?' session, Weber said: 'The European recovery is no reason to get excited. The recovery is lacklustre and it is uneven across European countries. This is not enough to bring down unemployment which is the big challenge. I am still concerned.

'The mood in financial markets may have improved but the economic situation in most European countries will not improve.'

He said one of the main risks facing Europe this year was the European Central Bank's review of the assets of 130 lenders in the eurozone.

'I expect some of the banks not to pass this test,' Weber said. 'You really have to ask yourself what will happen. I am concerned that as that becomes clear there will be a potential market reaction.'

He said worries about banks would trigger fresh concerns about governments because the state will be forced to step in to prop up stricken lenders.

'It is only the sovereigns that can fix the banks,' said Weber. 'I don't think the markets will provide sufficient capital, at least not for the banks that are in doubt. This is going to be a key issue this year.'

He added: 'Things feel better in Europe but they feel better than they are. Europe is not yet back. There is a risk that people are too complacent about the future.'

Rogoff, one of the world's leading economists, said that Europe was 'becoming more stable' but warned that youth unemployment in the region 'is really horrific' with more than half of under-25s in Greece and Spain unable to find work.

Europe is 'losing part of a whole generation', he said.

Sir Martin Sorrell, chief executive of advertising giant WPP, said Germany and the UK are recovering but added that 'France is still in the downturn' and 'Italy is bumping along the bottom'. 'The big problem with Western Europe if you are trying to run a business, the critical issue, is lack of labour market flexibility,' said Sorrell. 'Doing something about that is critically important.'

Giuseppe Recchi, chairman of Italian energy firm Eni, said: 'The recovery in Europe is based only on the possibility that Europe becomes the most attractive place for a company to locate.' He praised the UK's 'pragmatic' approach to shale gas and said the rest of Europe risked getting left behind as the US exploits vast reserves on the other side of the Atlantic.

Pierre Nanterme, the French chief executive of Accenture, said: 'Europe will be back when it has the level of competitiveness required to compete in the new world. We are not yet there.'


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