Euro zone will struggle to create fiscal union: former UK PM

NEW YORK Tue Sep 25, 2012 6:12pm EDT

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NEW YORK (Reuters) - Europe is enjoying a moment of calm due to the European Central Bank's plan to buy debt of euro zone countries, but the region will struggle to solve more fundamental problems, former British Prime Minister Gordon Brown said on Tuesday.

"You're in the new tranquility period," Brown said. He credited the plan announced earlier this month by ECB President Mario Draghi for calming financial markets, although so far, no country has asked for the central bank's help.

"He hasn't been called upon to do anything yet and he's hoping that he may not have to do anything," Brown said during a visit to Thomson Reuters' offices in New York.

However, Brown warned that the real test will come when European countries advance much further toward turning their single currency area into a fiscal union as the costs of such an ambitious move become apparent.

"The more fundamental problem is, how do you have an economic union that actually works in circumstances where the gap in incomes between the richest and poorest country is so big?" Brown said.

"Over a long period of time if you cannot solve inequalities between countries and reduce them, it's going to be very, very difficult for this monetary union to survive."

Brown said the Soviet Union and Yugoslavia, while probably destined to collapse anyway, fell apart quickly when their richest regions balked at the costs of supporting poorer ones.

"Germany, Denmark, Luxembourg, the richer countries, are they over time going to be prepared to pay the price for economic integration?" Brown asked, noting German opinion polls have shown opposition to Greece staying in the euro zone.

"The way things have been done, you're going to have some sort of fiscal union, and at that point you're going to say, 'Well, who is paying for this?' And at that point, I think people are going to demand referenda."

Brown, the United Nations special envoy for global education, was in New York for the launch of a U.N. education initiative.

(Writing by William Schomberg; Editing by Dan Grebler)

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Comments (1)
scythe wrote:
gordon would be better dissecting the dismal decline in the reputation of Uk banking following the libor-rigging scandal

Sep 25, 2012 7:27pm EDT  --  Report as abuse
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