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US history holds key to resolution of eurozone debt crisis, Nobel laureates say
Thomas Sargent (right) and Christopher Sims (left), winners of the 2011 Nobel Prize for economics, said Tuesday that a decision by the first 13 US states to combine their individual debt under a federal government holds the key to the EU debt crisis.
AFP - The American winners of this year's Nobel prize in economics said Tuesday that the solutions to the eurozone crisis are clear, economically, and the issue is mainly political.
New York University's Thomas Sargent, who with Princeton University colleague Christopher Sims captured the annual prize for economics, said the history of the founding of the United States shows what the issues and solutions are.
"There are no new issues in economic theory with Europe and the euro... the difficult thing is the politics," Sargent told a news conference in Princeton.
"In the 1780s, the United States is a basket case," he said, with 13 sovereign governments -- the 13 original states -- each of which could raise taxes and print money.
Meanwhile, he said, the new country had a very weak center, not having yet established a central bank or gained taxing power.
"Does this remind you of anything?... They (the states) all have debt, and the center has debt. Like eurobonds, they are going at deep discount."
Sims said the crisis of the European Monetary Union, focused now on Greece's inability to service its debts, and with two other members, Ireland and Portugal, in tough bailout programs, was predictable -- and that he had predicted it.
"I wrote a paper a few years ago on the precarious fiscal foundations of the EMU," Sims said hours after the Nobel announcement.
"The euro was founded with a central bank but no unified fiscal authority," he said, which "raised questions about what would happen when the need for fiscal and monetary coordination arose."
The eurozone nations "will have to work out a way to share fiscal burdens and connect fiscal authorities to the ECB," the European Central Bank.
"Right now none of those connections are clear... and the prospects for the euro are dim."
Sargent said the way the 13 states came together in 1787 to combine their debt under the new federal government and allow the federal government to levy taxes to be able to service the debt points the way for the eurozone.
But he said achieving that took a huge, complex and bold political decision.
"We were born with a determined solution to the problem that Europe is facing now. And it was a comprehensive solution," he told journalists.
"It was all done simultaneously, through a process that looks like a miracle.
"The older you get, and the more you watch Europe, the more miraculous that you will see."
Kicking out a weak eurozone state -- as is often suggested for Greece -- is not the solution, Sims added.
The notion "that things will get settled in the euro only if some weak countries leave is unrealistic," he said.
"It's in no sense a cure for the problems that face the euro."
Longtime freinds and sometime rivals, Sims and Sargent, both 68, were named Monday as this year's winners of the Nobel prize for economics for the work analyzing the causal relationships between economic activity and policy actions.