Hungarian central bank Governor Matolcsy: We need to admit the euro was a mistake – FT


In his write-up in the Financial Times (FT), the Hungarian Central Bank Governor Gyorgy Matolcsy recently wrote that the time has come to seek a way out of the euro trap. He also terms the French suggestion to create a common currency as “ill-advised.”

Key quotes

“Two decades after the euro’s launch, most of the necessary pillars of a successful global currency — a common state, a budget covering at least 15-20 per cent of the eurozone’s total gross domestic product, a eurozone finance minister and a ministry to go with the post — are still missing.”

“Most eurozone countries fared better before the euro than they did with it.”

“The common currency was not needed for European success stories before 1999 and the majority of eurozone member states did not benefit from it later. During the 2008 financial crisis and the 2011-12 eurozone economic crisis, most members were badly hit, having piled up huge government debts. There is no free lunch and cheap loans often cost a lot later.”

“The time has come to wake up from this harmful and fruitless dream. A good starting point would be to recognise that the single currency is a trap for practically all its members — for different reasons — not a gold mine.”

“EU states, both in and outside the eurozone, should admit that the euro has been a strategic error.”

“We need to work out how to free ourselves from this trap. Europeans must give up their risky fantasies of creating a power that rivals the US. Members of the eurozone should be allowed to leave the currency zone in the coming decades, and those remaining should build a more sustainable global currency.”

FX implications

Although the Euro (EUR) showed less reaction to the news, considering the start of the week’s trading only in Asia, such statements from the European policymakers defy investor sentiment in the regional currency and play negatively for the same. The EUR/USD pair is making rounds to 1.1170 by the press time of Monday morning in Asia.

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