Economic parameters such as interest rates must be set at two levels in the eurozone to accommodate weaker economies if it is to survive the sovereign debt crisis, according to Standard Chartered.
Last week, the Greek government approved an austerity package to deliver £28bn of savings over the next five years through cuts in public spending and tax increases.
It will need to stick to the plan to get future tranches of €110bn in loans offered by the European Union and the International Monetary Fund, which it needs to service its €340bn debt.
At the British Bankers’ Association international banking conference, Standard Chartered chief economist Gerard Lyons said Spain, Ireland, Portugal and Greece will not be able keep up with stronger Northern European economies.
He said a “two-speed euro” is essential, where economic par-ameters can be set at two levels to accommodate weaker econ-omies. He said:
“The core countries have decided the core must remain intact and if the periphery wants to remain, it will have to play by the core’s rules. If that means social instability and higher unemployment, the periphery cannot stay in.
“We need to deal with the reality of the situation rather than kicking the can down the road. I would say we need a two-speed euro if we are serious about this.”
Lloyds Banking Group chief economist Trevor Williams says the Greece rescue will give European leaders the chance to develop plans for future crises.
He says: “The template used to rescue Greece will have to be used in a similar exercise for Portugal and Ireland, who cannot pay their debts back either.”