Former Canadian Prime Minister Paul Martin said Europe must make progress toward a deeper union that includes joint euro-region bonds, much like what Alexander Hamilton did in the U.S. more than two centuries ago.
Martin, speaking at the Bloomberg Canada Economic Summit in Toronto, said that Europe needs to come to the “recognition” that their currency union will eventually require the development of federal institutions.
“Until they face up to that, I don’t think there is going to be a solution to their problem,” Martin, 73, said. “Alexander Hamilton did exactly what had to be done.”
In 1789, as the first Treasury secretary, Hamilton had the U.S. federal government take over much of the states’ debt.
Martin said there will probably be more defaults in the region and issuing of Eurobonds will be essential.
“The new debt is going to have to be euro-debt,” Martin said.
The euro weakened for a seventh day against the dollar today as Greek politicians struggled to form a new government after elections over the weekend raised the prospect of the country withdrawing from the currency bloc. The Stoxx Europe 600 Index slid 1.7 percent to 250.58 at the close in London as the cost of insuring against default on European sovereign and corporate debt advanced.
Martin, who eliminated deficits and reduced Canada’s debt over his 13 years in office as both finance minister and prime minister that ended in 2006, said European countries should “stretch” out their austerity programs to ensure spending cuts don’t end up fueling deficits and acknowledge that Greece won’t be able to live up to its budget-cutting plan.
European banks will also have to put an end to their “incestuous relationship” with sovereign debt, Martin said, pointing to the practice of banks using low-cost funding provided by the European Central Bank to purchase sovereign bonds.