Nobel economists say euro zone needs fiscal union

Mon Oct 10, 2011 7:53pm EDT
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By Walter Brandimarte, Simon Johnson and Veronica Ek

STOCKHOLM/PRINCETON, New Jersey (Reuters) - Two Americans were awarded the Nobel prize for economics on Monday for work that was lauded as laying for foundation for modern macroeconomic analysis, but the two winners said they had no easy answers for the debt crisis plaguing Europe.

Christopher Sims and Thomas Sargent were awarded the prize by the Royal Swedish Academy of Sciences for their work that governments can use to gauge the effects of policy.

But even without any clear answers on a way out for Europe from its debt crisis, Sims said the euro zone must create a fiscal union to avoid the collapse of its common currency.

"If the euro is to survive, the euro area will have to work out a way to share fiscal burdens," Sims said in a press conference at Princeton University, where he is a professor.

Governments of the 17-nation euro zone are trying to resolve a debt crisis that threatens to spread from weaker economies in Greece, Portugal and Ireland to the region's bigger counties, including Italy. Much of Europe shares the euro currency but individual countries do not vouch for one another's debts.

The European Central Bank could need some "central fiscal backing" by euro zone countries, Sims added.


The two American economists conducted separate research in the 1970s to model cause and effect in economies, including the complex interplay of tax and interest rate policies with the expectations of people and businesses.   Continued...

<p>Nobel Prize for Economics winner Professor Christopher Sims of Princeton University speaks during a news conference at Princeton University in Princeton, New Jersey, October 10, 2011. REUTERS/Tim Shaffer</p>