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Gordon Brown warns of imminent euro 'high noon' Gordon Brown warns of imminent euro 'high noon'
(40 minutes later)
Former British Prime Minister Gordon Brown has told the BBC he fears the euro will face a "high noon" moment of reckoning early in the New Year. Former British Prime Minister Gordon Brown has told the BBC he fears the euro will face a "high noon" moment of reckoning early in the new year.
"I sense that in the first few months of 2011 we [will] have a major crisis in the euro area," he told the BBC's business editor, Robert Peston."I sense that in the first few months of 2011 we [will] have a major crisis in the euro area," he told the BBC's business editor, Robert Peston.
He said the euro's problems were bigger than just its governments' debts.He said the euro's problems were bigger than just its governments' debts.
Europe must also solve the euro's structural rigidities and the massive debts of its banks, he warned. Europe must also solve the euro's structural rigidities and the enormous debts of its banks, he warned.
'Diminishing living standards'
He said that Europe's banks - including the UK's - faced massive liabilities and had inadequate capital to absorb losses, creating the risk of a Europe-wide banking crisis.He said that Europe's banks - including the UK's - faced massive liabilities and had inadequate capital to absorb losses, creating the risk of a Europe-wide banking crisis.
The warning echoed complaints by Irish opposition politicians that their country had been strong-armed by Brussels into footing the bill for rescuing the Irish banks, because failing to do so could have sparked a wider European banking crisis.The warning echoed complaints by Irish opposition politicians that their country had been strong-armed by Brussels into footing the bill for rescuing the Irish banks, because failing to do so could have sparked a wider European banking crisis.
'Diminishing living standards'
Mr Brown also said that the structural reforms needed to make the euro work as a single currency area had not been carried out, or even agreed.Mr Brown also said that the structural reforms needed to make the euro work as a single currency area had not been carried out, or even agreed.
He said that European politicians had to "seize the initiative from the markets" by preparing a comprehensive solution to its financial and economic problems, or else face countries being picked off one-by-one. Many economists warned at the euro's inception that without the option of devaluing their own currency, weaker economies would need to have much more flexible labour markets in order to cut wage costs and maintain competitiveness.
Failure to solve the euro's problems would condemn Europe to "an unnecessary and avoidable period of low growth and high unemployment, and diminishing living standards" he said. The former prime minister said that European politicians had to "seize the initiative from the markets" by preparing a comprehensive solution to its financial and economic problems, or else face countries being picked off one-by-one.
Failure to solve the euro's problems in one fell swoop would condemn Europe to "an unnecessary and avoidable period of low growth and high unemployment, and diminishing living standards", he said.
He added that this was something that would affect the UK too, because 60% of the country's trade was with the rest of Europe.He added that this was something that would affect the UK too, because 60% of the country's trade was with the rest of Europe.
'Economic orthodoxy'
In the interview, Mr Brown also discussed global economic and financial problems.
He claimed credit for having helped avoid a second depression via prompt action at the height of the 2008-09 crisis.
But he regretted his failure to impress on other world leaders the need for what he called the second and third phases of the response - namely to rebuild the international financial system and to agree a global growth strategy.
"A global financial system with national regulators was never going to work," he said.
He called for a "global constitution for banking" that would stop banks from getting around financial regulation by relocating activities to less strict countries, or by using "shadow banks" - companies that behave like banks but are not regulated.
He also attacked the "economic orthodoxy of today" in criticism that could be applied to the governments of Germany and the UK, as well as to Republicans in America.
He said that "simply to cut deficits and hope that investment will return" was to repeat the failed policies of the 1930s that sustained the Great Depression.