Margareta Pagano: Candid truths on the euro crisis from a man who knows his facts

Midweek View: Issing fears that giving more power to Brussels and Frankfurt and sharing financial risk will lead to a backlash

If you have the chance, watch the BBC's Hardtalk interview with Otmar Issing, the former chief economist at the European Central Bank who was one of the midwives to the euro. It's riveting stuff: Mr Issing is candid about the failures of the grand project, admitting that the bigger countries, such as Germany and France, were able to break the stability pact, yet the smaller ones were punished for doing so.

He also admits that the quality of economic information provided by individual countries applying to join, and presented by Eurostat to the ECB, was "lousy" – at times "inadequate, incomplete and maybe false" – while nearly all the countries showed "creative accounting".

When asked why the ECB didn't challenge these numbers at the time, Mr Issing replies, rather bleakly: "Should I have taken a plane to Athens?" Well, yes, if you look today at what is happening on the streets of Greece and now Spain.

Even more gripping than the ECB's mea culpa is Mr Issing's warning that the present drive for "more Europe" and political union is dangerous, if not fatal, to the peoples of Europe.

It's on this issue that he differs most with Germany's Chancellor Angela Merkel, whom he advised until earlier this year, and where a gulf seems to be opening up between those who now claim that greater political union is the way out of this mess and those who don't – including most German taxpayers.

It's also a vindication for Mr Issing, who predicted potential problems with the euro, arguing that political union ought to precede a shared currency to ensure its long-term stability.

Now, though, he fears that centralising power in Brussels and Frankfurt (and indeed sharing financial risk) could provoke a public backlash, as we are seeing vividly in the hardest-hit countries in Europe.

As he puts it: "This belly-cry that we need more Europe is the wrong conclusion – we have already gone too far", suggesting that if those who want political union were to put it to the test with new treaties and referendums asking the public for union, they will fail. It's a "fancy idea, a dangerous one, fatal for the identification of the peoples of Europe".

What he is implacably against now is the ECB's latest promise to provide unlimited support to defend the euro by buying the bonds of those nations most hurt. With €200bn of bonds already on its books, this promise takes the ECB beyond its mandate, he claims. Indeed, if the ECB does go on to create Eurobonds – and the mutualisation of sovereign debt – then he warns that Germany's long-term interest rates will rise while those in other countries will decline, a step which would transfer money from the German taxpayer to other countries without any democratic legitimacy. "This would be a violation of the principle of no taxation without representation."

You can't say it clearer than that, and he's right.

Yet despite all this, Mr Issing still rejects the idea that Germany should leave the euro – "a foolish idea" – and predicts that it will never leave.

He also believes that the euro should and can be saved, a view outlined in his latest book, Wie wir den Euro retten und Europa stärken (How we save the euro and strengthen Europe). But if it is to be saved there will have to be reforms, and some countries will be forced to leave. He doesn't name Greece explicitly, but makes the point that countries either abide by the rules – as Portugal has done with its spending plan – or they don't, in which case they may have to leave to sort out their debt problems.

Quoting Mario Monti, the Italian Prime Minister, he says politicians have been too polite to each other in the past, but must now face up to the problem to find new resolutions that don't lead to further pain – or bloodshed.

Sounds like he's learnt lessons from the early days when the politicians, backed by their economists, were dishing out the fairy-tale numbers to get them into the club, and which went unchallenged by the ECB.

Why this fascinating interview was hidden away on the BBC's World Service, and first run at 4am on Monday morning, is bizarre, as it's just the sort of reporting which should be primetime if we are to learn from the past. As one of the founders, Mr Issing has much to offer today's policy-makers sorting out the mess. As he warns, the ECB is a central bank that is lender of last resort to the banking system, but not an institution that rescues governments threatened by bankruptcy. Or shouldn't be.

Suggested Topics
A 1930 image of the Karl Albrecht Spiritousen and Lebensmittel shop, Essen. The shop was opened by Karl and Theo Albrecht’s mother; the brothers later founded Aldi
Arts and Entertainment
Standing the test of time: Michael J Fox and Christopher Lloyd in 'Back to the Future'
filmA cult movie event aims to immerse audiences of 80,000 in ‘Back to the Future’. But has it lost its magic?
Louis van Gaal watches over Nani
Arts and Entertainment
Flora Spencer-Longhurst as Lavinia, William Houston as Titus Andronicus and Dyfan Dwyfor as Lucius
theatreThe Shakespeare play that proved too much for more than 100 people
exclusivePunk icon Viv Albertine on Sid Vicious, complacent white men, and why free love led to rape
New Real Madrid signing James Rodríguez with club president Florentino Perez
transfersColombian World Cup star completes £63m move to Spain
Arts and Entertainment
Stir crazy: Noel Fielding in 'Luxury Comedy 2: Tales from Painted Hawaii'
comedyAs ‘Luxury Comedy’ returns, Noel Fielding on why mainstream success scares him and what the future holds for 'The Boosh'
Life and Style
Flow chart: Karl Landsteiner discovered blood types in 1900, yet scientists have still not come up with an explanation for their existence
lifeAll of us have one. Yet even now, it’s a matter of debate what they’re for
Arts and Entertainment
'Weird Al' Yankovic, or Alfred Matthew, at the 2014 Los Angeles Film Festival Screening of
musicHis latest video is an ode to good grammar. But what do our experts think he’s missed out?
Hotel Tour d’Auvergne in Paris launches pay-what-you-want
travelIt seems fraught with financial risk, but the policy has its benefits
Arts and Entertainment
booksThe best children's books for this summer
Life and Style
News to me: family events were recorded in the personal columns
techFamily events used to be marked in the personal columns. But now Facebook has usurped that
ebookA unique anthology of reporting and analysis of a crucial period of history
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Business Analyst - Banking - Scotland - £380-£480

£380 - £480 per day: Orgtel: Business Analyst - Banking - Edinburgh - £380 - ...

Programme Director - Conduct Risk - London

£850 - £950 per day: Orgtel: Programme Director - Conduct Risk - Banking - £85...

Business Analyst (Agile, SDLC, software)

£45000 - £50000 Per Annum + excellent benefits: Clearwater People Solutions Lt...

Finance Manager - Bank - Leeds - £300/day

£250 - £300 per day + competitive: Orgtel: Finance Manager - Accountant - Bank...

Day In a Page

Noel Fielding's 'Luxury Comedy': A land of the outright bizarre

Noel Fielding's 'Luxury Comedy'

A land of the outright bizarre
What are the worst 'Word Crimes'?

What are the worst 'Word Crimes'?

‘Weird Al’ Yankovic's latest video is an ode to good grammar. But what do The Independent’s experts think he’s missed out?
Can Secret Cinema sell 80,000 'Back to the Future' tickets?

The worst kept secret in cinema

A cult movie event aims to immerse audiences of 80,000 in ‘Back to the Future’. But has it lost its magic?
Facebook: The new hatched, matched and dispatched

The new hatched, matched and dispatched

Family events used to be marked in the personal columns. But now Facebook has usurped the ‘Births, Deaths and Marriages’ announcements
Why do we have blood types?

Are you my type?

All of us have one but probably never wondered why. Yet even now, a century after blood types were discovered, it’s a matter of debate what they’re for
Honesty box hotels: You decide how much you pay

Honesty box hotels

Five hotels in Paris now allow guests to pay only what they think their stay was worth. It seems fraught with financial risk, but the honesty policy has its benefit
Commonwealth Games 2014: Why weight of pressure rests easy on Michael Jamieson’s shoulders

Michael Jamieson: Why weight of pressure rests easy on his shoulders

The Scottish swimmer is ready for ‘the biggest race of my life’ at the Commonwealth Games
Some are reformed drug addicts. Some are single mums. All are on benefits. But now these so-called 'scroungers’ are fighting back

The 'scroungers’ fight back

The welfare claimants battling to alter stereotypes
Amazing video shows Nasa 'flame extinguishment experiment' in action

Fireballs in space

Amazing video shows Nasa's 'flame extinguishment experiment' in action
A Bible for billionaires

A Bible for billionaires

Find out why America's richest men are reading John Brookes
Paranoid parenting is on the rise - and our children are suffering because of it

Paranoid parenting is on the rise

And our children are suffering because of it
For sale: Island where the Magna Carta was sealed

Magna Carta Island goes on sale

Yours for a cool £4m
Phone hacking scandal special report: The slide into crime at the 'News of the World'

The hacker's tale: the slide into crime at the 'News of the World'

Glenn Mulcaire was jailed for six months for intercepting phone messages. James Hanning tells his story in a new book. This is an extract
We flinch, but there are degrees of paedophilia

We flinch, but there are degrees of paedophilia

Child abusers are not all the same, yet the idea of treating them differently in relation to the severity of their crimes has somehow become controversial
The truth about conspiracy theories is that some require considering

The truth about conspiracy theories is that some require considering

For instance, did Isis kill the Israeli teenagers to trigger a war, asks Patrick Cockburn