January 27, 2011
The financial markets may have offered a recent respite to highly indebted eurozone members but they will still be forced into early sovereign restructuring, said leading economists at the World Economic Forum in Davos.
Their warnings come as political leaders and central bankers pledged cast-iron support for the euro but stopped short of spelling out the reforms that will be necessary to stabilise the single currency.
Speaking on Thursday, Carmen Reinhart of Maryland University who has examined centuries of sovereign debt crises, said: “It is very difficult for me to look at the [eurozone] debt numbers and say a restructuring is going to be avoided.”
Her comments were echoed by Larry Summers, until recently chief economic adviser to President Barack Obama. Commenting on the step-by-step nature of the eurozone response to its sovereign debt crisis, he told the Financial Times: “Europe is testing the limits of reactive incremental strategy ... The laws of economics, like the laws of physics, do not respect political constraints.”