EU Too Complex for Debt Fix, Blanchflower Says: Tom Keene

The European Union may have missed its best chance to stem the region’s debt crisis and its complex institutional structure will complicate future efforts, according to Dartmouth College’s David Blanchflower.

Any relief attempts will require working around existing legislation and cooperation across governments, which is time- consuming and inefficient, Blanchflower said.

“This contagion is spreading faster than we can stop now,” Blanchflower, an economics professor at Dartmouth and former Bank of England policy maker, said in a radio interview on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt. “You need to do something in a week, and it would take these guys a year to work it out.”

With markets bracing for further deterioration in Spain’s finance sector and a possible Greek departure from the 17-member euro area, Spanish Prime Minister Mariano Rajoy on June 2 added his voice to calls for a “banking union” in Europe involving a centralized system to re-capitalize lenders.

German Chancellor Angela Merkel shut off another crisis- fighting avenue the same day as she toughened her opposition to euro-area debt sharing, saying that “under no circumstances” would she agree to euro bonds.

Paul De Grauwe, a professor at the London School of Economics & Political Science, has proposed a blanket bond markdown across Europe. European nations lack the cooperation required to execute such a plan, Blanchflower said.

‘Done Nothing’

“The problem is you can’t do it fast enough,” he said. “We’ve had 18 meetings that have absolutely done nothing. The institutional structure in Europe is such that it just takes so long to actually do anything.”

Yields on German two-year notes fell below zero for the first time ever last week as investors fled riskier sovereign debt. Spanish bonds dropped for a fourth week, pushing the country’s 10-year yields above 6.5 percent -- nearing the 7 percent threshold which triggered the three earlier bailouts.

Spain plans to sell bonds maturing in 2014, 2016 and 2022 on June 7. The amount hasn’t yet been set. Blanchflower estimates that the nation will need to raise about 500 billion euros ($625 billion).

To contact the reporters on this story: Joseph Ciolli in New York at jciolli@bloomberg.net; Tom Keene in New York at tkeene@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.