Fed official warns of ‘traumatising’ effects of euro breakup

Date: Thursday 17 May 2012

James Bullard, the president of the St Louis Federal Reserve Bank, has warned of the devastating effects that a break-up of the Eurozone would have on the US economy although he believes that the monetary union will push on.

“If there was a break-up of the euro I do think it would be a traumatising event both for the United States and for the global economy,” he stated in response to a reporter’s question.

Nevertheless, Bullard doesn’t expect the demise of the euro and commented that “the whole fabric of a tariff free area and a currency union will remain in place.”

Bullard’s comments hit the news amid market worries that Greece’s inability to form a government and the increasing power of the radical left Syriza party, which is threatening to ignore the bailout terms, cause analysts to speculate on whether the Hellenic Republic might be forced to exit the euro.

The minutes from the latest Federal Reserve policy-setting meeting were published last night and members expressed concern over the threats from the heightened tension in European debt markets. “Participants identified several downside risks to the projected pace of economic expansion, including the fiscal and financial strains in the euro area and the possibility of an abrupt fiscal consolidation in the United States,” noted the minutes.

JM

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