Thaindian News

Kolkata, Nov 4 (IANS) Terming Europe as the “trouble zone”, the union finance ministry’s Chief Economic Advisor Kaushik Basu Friday said the region creates a tension to the world economy.

“Some talks are going on that there is a possibility that Greece may break away from Eurozone and create its own currency once again. And if so, this would be a huge experiment and there may be major ramifications. It creates a tension to world economy and India is not out of it in a globalised world,” Basu said during a programme organised by the Heritage Group of Institutions.

One set of tensions in the global economy is coming from the Eurozone crisis, he said.

“Eurozone is a creation we have never seen before. The structure, that has no past experience, is a cluster of countries that have a common currency and a common central bank and that was created in one moment. There exist indeed some fault lines in the structure of Eurozone, which does not mean that it cannot be corrected,” Basu said.

Explaining the problems, he said: “The American government runs up big public debts and default risk is minimal because it has access to central bank which is an American central bank. If required, investors know, American government can print money to repay the debt. The same is not true for European contries.”

“Spain, Italy and other Eurozone countries borrowed heavily; if they have difficulties to repay debts, they no longer have their own individual central bank. They have an European central bank. Eventually, they have to go to countries like Germany and France for seeking rescue,” he stated.

He felt that Eurozone has given each government too much autonomy to borrow money but there is less autonomy for individual central bank’s operation.