Europe loses if euro zone ruptures: Nowotny

VIENNA (BestGrowthStock) – The euro zone economy has become so closely intertwined that “amputating” peripheral states with debt problems would hurt Europe and help the dollar, European Central Bank Governing Council member Ewald Nowotny said.

“A country like Germany — and this is also true for Austria — is very much bound up with the European economic zone,” he said Sunday during a panel discussion on Austrian television on whether the single currency bloc could avoid a breakup.

“Europe has already grown together so much than an amputation would have massive disadvantages for both sides,” he said, noting the significant export markets that countries on the euro zone’s periphery represent for other members.

“The only thing that would profit from this would be the dollar, and Europe would lose.”

The euro has fallen by around a quarter versus the dollar this year as investors worry whether the bloc can stand the strain of supporting weaker members.

The euro continues to work well despite the debt woes of some euro zone members, Nowotny said.

“I think it is important to differentiate. On the one side I have the euro as a currency. On the other side I have problems, and they are definitely real problems, of individual states….The euro as a currency is fully able to function.”

He noted some states “have serious difficulties, for different reasons,” noting some were battling budget deficits while Ireland was suffering because of its banking sector.

“I find it completely false…to see the problems of these states as a problem of the euro alone,” he said, criticizing the “many politicians who obviously fail to separate this in an analytical manner.”

Nowotny was critical of German Chancellor Angela Merkel last month on this subject.

Nowotny, who heads Austria’s central bank, insisted that hard-hit euro zone countries must be first in line to address their debt problems when seeking outside help.

Asked whether a 750 million euro ($1 billion) rescue fund set up in May by the European Union and the International Monetary Fund need to be drastically expanded, he stressed that external aid could only complement these efforts.

“Countries like Greece or Ireland have very strict (austerity) programs and they have to see them through over the long term. Only when these countries do that themselves does it make sense to provide help for self-help,” he said.

“The idea of this safety net is not to replace their own efforts, but to support their own efforts….Those that are directly affected have the primary responsibility to solve them.”

(Reporting by Sylvia Westall and Michael Shields; editing by Gunna Dickson)

Europe loses if euro zone ruptures: Nowotny