Goldman’s O'Neill: Eurozone Has Only Two Years to Live in Current Form

Wednesday, 25 Jul 2012 11:39 AM

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The eurozone has two years left to live in its current form, said Jim O'Neill, chairman at Goldman Sachs Asset Management.

The yield on Spanish 10-year note hit a euro-era high of 7.60 percent recently. A yield over 7 percent in Spain generally suggests investors view the country as in need of a bailout.

Meanwhile, Greece owes $3.75 billion in bond payments in August, and fears are building the country will need help from its neighbors to meet its obligation.

Editor's Note: Unthinkable Haunts Investors: Evidence for Imminent 90% Stock Market Drop. 

“Two years maximum is my perception of the time the eurozone has left to survive in its current form, though the reality is probably far less than that," O’Neill told CNBC. "Markets being markets we’ve unveiled a degree of speed with the Spanish and Italian bond yields and I can’t see us getting through the summer without some serious consequences.”

One solution to fighting the debt crisis involves the issue of a so-called euro bond, under which all member nations would underwrite and finance a single bond issue to help finance troubled economies in Italy, Greece and Spain.

Wealthier countries like Germany have balked at the idea, claiming it would unfairly ask their taxpayers to shoulder other countries' debt burdens and hike up interest rates at home.

“All 17 leaders could get together and commit to a Eurobond sometime in the future and hey presto, that would be the beginnings of a major resolution,” O'Neill said, adding such a route was unlikely.

Inaction today leaves markets priced for “almost permanent disaster,” O'Neill added.

Investors are worried, pointing out that European policymakers need to make tough decisions now as opposed to announcing measures that bring temporary relief, such as agreeing to create a centralized banking overseer but punting on deciding what all powers it would have.

The longer Europe waits to tackle the crisis via tougher measures, the harder it gets.

“Everyone is looking for an easy way out, but there isn’t one,” said Stephen Jen, a former economist at the monetary fund who runs a London-based hedge fund, according to the New York Times.

Editor's Note: Unthinkable Haunts Investors: Evidence for Imminent 90% Stock Market Drop. 


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