The eurozone is on course for a double-dip recession after the second wave of COVID-19 infections during the last quarter of 2020 sent the recovery into reverse. As a result of national governments introducing new restrictions and lockdowns to try to curb the spread of the virus, the eurozone’s GDP fell by 0.7 percent from October to December. With lockdowns likely to persist through much of the first quarter of 2021 and the EU’s sluggish start of its vaccine rollout programme, analysts believe the bloc will almost certainly suffer a second bout of declining economic activity during January to March.
A recession is defined as at least two consecutive quarters of negative growth.
Moreover, the euro tumbled to a nine-month low against the pound in response to the figures and the prospect of a double-dip recession.
On the other hand, sterling rose to €1.1365 for the first time since last May, meaning one euro is worth 88p.
As many wonder whether the gloomy outlook could mean the unravelling of the eurozone, an interview with famed investor Warren Buffett on the single currency has resurfaced.
At an event organised by Junior Achievement, a non-profit that teaches children about business, Mr Buffett brilliantly explained why the euro is ultimately doomed to fail.
He said: “That is something I would have not done… in terms of linking 17 countries to a single currency.
“Just imagine if 10 or 15 years ago I had proposed the US formed the Western hemisphere currency union…
“We would have taken Canada and that would have probably been okay.
“But then we would have taken Mexico, Peru, Ecuador…
“And would that sustain itself if they follow different fiscal policies and have different cultures?”
Mr Buffett added in 2011: “It [the eurozone] was a great experiment, I am not so sure it’s that workable without either coming closer together or reconfiguring in some major way.”
Mr Buffett is a famed American investor, business tycoon, philanthropist, and the chairman and CEO of Berkshire Hathaway.
He is considered one of the most successful investors in the world and has a net worth of over US$85.6billion (£61bn) as of December 2020, making him the world’s fourth-wealthiest person.
Former President of the European Commission and one of the main architects of the euro Jacques Delors echoed Mr Buffett’s claims that same year.
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Mr Delors argued the errors made when the euro was created had effectively doomed the single currency to the debt crisis.
He told the Daily Telegraph in 2011 that the lack of central powers to coordinate economic policies allowed countries, such as Italy and Greece, to run up unsustainable debt.
He also stated that the debt crisis did not stem from the single currency itself, but from a “fault in execution” by political leaders who chose to turn a blind eye to the fundamental weaknesses and imbalances of member states’ economies.
The now 95-year-old Frenchman said: “The finance ministers did not want to see anything disagreeable which they would be forced to deal with.”
Mr Delors insisted that all European member states should share the blame for the 2009 crisis.
He said: ”Everyone must examine their consciences.”
Commenting on Britain, who objected to euro membership claiming the currency could not work without a state, Mr Delors added: “They had a point.”
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He also noted that the reaction of EU leaders had been “too little, too late”.
In particular Mr Delors identified “a combination of the stubbornness of the Germanic idea of monetary control, and the absence of a clear vision from all the other countries”.
In the late Eighties, Mr Delors’ plan was indeed received with high levels of scepticism by Britain and, in 1990, Margaret Thatcher’s Government proposed an alternative to the French politician’s full monetary union.
According to a BBC report of the time, then Chancellor of the Exchequer John Major announced the plan in a speech to German businessmen.
It was envisaged that the currency, called the Hard ECU, would be used initially by businesses and tourists and managed by a new European Monetary Fund (EMF).
According to a 2015 report by economist at Capital Economics John Phelan, the Hard ECU would have been “less economically and politically” damaging than the euro.
The economist argued several eurozone countries desperately need the tool of devaluation that the euro denies them.
He said: “The Hard ECU would have allowed them this tool until such time as they no longer needed it. If that time didn’t come, then they should not have joined the single currency.
“Politically, by giving democratically accountable domestic policymakers the ‘greater policy space’ offered by devaluation, the Hard ECU would have generated less of the resentment that the euro currently fuels.”