The European Union is doomed to fail, at least as a monetary bloc, because the cultural differences between northern and southern countries are just too vast to allow for one monetary policy, says former Federal Reserve Chairman Alan Greenspan.
"At the outset of the creation of the euro in 1999, it was expected that the southern eurozone economies would behave like those in the north; the Italians would behave like Germans. They didn't,"
Greenspan told CNBC.
"Instead, northern Europe fell into subsidizing southern Europe's excess consumption, that is, its current account deficits."
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Eventually, southern European nations will no longer be able to import northern European goods.
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Alan Greenspan
(Getty Images photo)
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"The effect of the divergent cultures in the eurozone has been grossly underestimated," Greenspan says.
"The only way to have several currencies from divergent nations lumped together is if they are culturally close, such as Germany, the Netherlands and Austria. If they aren’t, it simply can’t continue to work."
Others share Greenspan's dim view of the European crisis.
Nobel Prize-winning economist Joseph Stiglitz said the euro currency could dissolve “any time now,” and that the nations of the euro area are unlikely to “really” solve their sovereign debt crisis.
Speaking to reporters in Toronto on Tuesday, the Columbia University economics professor said a big crisis in Europe would likely spread around the world, Bloomberg reported.
Stiglitz also said austerity is a “suicide pact” for the world’s major economies.
“The only way we’re going to make it through, restore economic growth, is by stimulating the economy,” he said. “The austerity that is going on in Europe, America and so forth is effectively a suicide pact for our economies.”
U.S. stocks, meanwhile, will continue on their wild swings while Europe works through its debt woes, which stem from fears that Greece will default and send shockwaves across the Atlantic.
"Today, there is one single integrated global stock market," Greenspan says.
Some companies in the U.S. say the European debt crisis is beginning to cut into demand and is now bruising corporate profits, which have been strong this year despite a sluggish economy.
"The quarter turned out to be a very different one than what we expected," says George Buckley, CEO of 3M, according to Reuters.
"Cause No. 1 was worries about European sovereign debt and the European economy. Cause No. 2 was the rapid contraction of the electronics end markets."
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