Posted By thestatedtruth.com on March 7, 2010

March 7 (Bloomberg) — Former Federal Reserve Chairman Paul Volcker said European officials are lucky that the euro region’s first major crisis was sparked by one of its smaller members and he’s confident the currency will survive.

“I’m still a believer in the euro,” Volcker said in an interview in Berlin yesterday. The lack of a unified government to back up the European Central Bank is a “structural crack” and “maybe fortunately it’s tested with a country as small as Greece, which doesn’t present an insuperable financing problem.”

The euro’s founding treaty sets out no rules on how a struggling member nation could be rescued and didn’t establish a single finance ministry, prompting billionaire investor George Soros to say on Feb. 28 that the currency “may not survive” the crisis.

Greece, which announced a further round of deficit cutting measures last week, managed to sell 5 billion euros ($6.8 billion) of new 10-year bonds on March 4, which Volcker called “a good sign.” At 12.7 percent of gross domestic product, Greece’s deficit was the highest in the 27-nation European Union last year.

A “combination of very strong measures and availability of money” may help solve the Greek problem and stop contagion spreading to other euro nations, said Volcker, who was in the German capital to give a speech to the American Academy in Berlin, a transatlantic research institute.

Harvard University Professor Martin Feldstein, who warned in 1997 that European monetary union would spark greater political conflict, said Feb. 12 that the euro “isn’t working.” Soros said 10 days later that if EU members don’t take the next step toward political union, the common currency may disintegrate.

While EU leaders on Feb. 11 pledged to safeguard financial stability in the euro area as a whole, no mechanism has been set up for doing that, Soros said.

German Chancellor Angela Merkel, who met with him the same day, said the question of a bailout “absolutely doesn’t arise” and the steps taken in Greece to cut the deficit make her optimistic that a rescue won’t be needed.

French President Nicolas Sarkozy, who meets Papandreou in Paris today, said yesterday the EU must support Greece or risk destroying the euro.

Volcker used his speech to lay out the reasoning behind the so-called Volcker Rule that underpins the legislation sent by President Barack Obama to Congress this past week. He also pointed to the “abuse” of derivatives to massage Greece’s budget deficit as a reason to tighten regulation of the securities.

“Surely the recent revelations about the use (and abuse) of complex derivatives in obscuring the extent of Greek financial obligations reinforces the need for greater transparency and less complexity,” Volcker said in his speech yesterday.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aGUcqkSNUJwY&pos=4

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