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FINANCE/ Cooley (NYU): Obama’s right, the EU risks to sink the markets

Ilsussidiario.net asked Thomas Cooley, a professor at New York University, to comment on the reasons for the growing U.S. concern about the situation of the euro and the EU policies

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President Barack Obama called Mario Monti and Angela Merkel this week to ask them to strengthen the Eurozone and to encourage growth. This was announced by the White House spokesman, Jay Carney, who said that “In preparation for the G20 summit in Mexico on June18-19, President Barack Obama telephoned Prime Minister Mario Monti for an exchange of ideas on the economic situation. Both have agreed on the importance of strengthening the capacity of the Eurozone to respond to the crisis and to stimulate growth in Europe. They also agreed to remain in close contact”. In recent days, the White House has criticized European leaders for the delay with which they have faced the crisis. Ilsussidiario.net contacted Thomas Cooley, a professor at the Stern School of Business at New York University, asking him to comment on the reasons for the growing U.S. concern about the situation of the euro.

Professor Cooley, how severe is the Eurozone crisis as seen from New York?

The situation is very dangerous because European political leaders have been reluctant to recognize the seriousness of the problem and to propose a type of solution that provides necessary stability in the long run. Finally, they have begun to engage in dialogue and to discuss exactly what type of approach is required. In fact, the crisis must be addressed as a problem with the banking system on a European scale, instead of being treated as if it concerns a number of different banking systems. They must accept the fact that the fiscal concerns are the concerns of all and not something that should be solved by individual countries.

Do you think that the euro is likely to be saved?

I am not optimistic about Greece, which I think is a lost cause, but I am convinced that it is still possible to find a solution that will hold all the other countries together. I find it hard to imagine that the euro will disappear completely, because the cost of this would be too high. Even the most reluctant governments, such as Germany, are becoming increasingly aware of these costs, and they will accept the prospect of having to do more than what they have done so far.

In recent days, Obama has repeatedly criticized the EU. Why is the White House so worried about the fate of Europe?

Because of the effect that the European situation might have on the U.S. recovery. There is no doubt that the Eurozone crisis is also affecting our economy, and that which has a negative impact on the United States, has a negative impact on the global markets. President Obama’s criticisms do not come out of simply his personal interest and his desire to win the election, but also from the point of view of the rest of the world. Europe is undoubtedly faced with a very sharp economic contraction and is sinking into recession. The White House fears that it can pull other countries down with it.

Should the ECB cut interest rates, as advocated by the IMF?