Euro zone may confronts 1930s recession: Gerrit

AMSTERDAM: Former Dutch Finance Minister Gerrit Zalm said on Sunday Europe would fall into a recession worse than the one seen in the 1930s if the euro zone fell apart.

Asked on Dutch current affairs TV programme Buitenhof what would happen if the euro zone broke up, Zalm said: "We will have a recession which makes the 1930s look like nothing."

"The whole of Europe will crumble. You will get Switzerland effects. Switzerland has gotten a very strong currency and are being pushed out competitively because of the strong franc," said Zalm, who was Dutch finance minister until 2007.

"For the Netherlands it would mean that if the European economy plunges, we would follow. Three quarters of our export goes to Europe," said Zalm, who earned a reputation as a fiscal hawk in Europe as one of the proponents of budget rules.

Zalm, who was the longest serving Dutch finance minister having the job for a total of 12 years, said he disagreed with calls from former European Commissioner and Dutch politician Frits Bolkestein to put Greece out of the euro zone.

"I don't think that is the solution. The next remark will be that Italy should leave the euro zone that Ireland should leave, that Portugal should leave. If that continues long enough you remain with only the Netherlands and Germany. I don't think that is a good development," Zalm said.

European aid to Greece should be given on the condition that Greece left the euro zone and return to the drachma currency because keeping the euro would be worse, Bolkestein told Dutch current affairs TV programme Nieuwsuur on Saturday.

By returning to the drachma, Greece could devalue its currency and stimulate exports. To be able to pay its debt with a weaker currency, Greece would have to restructure it, said Bolkestein, who was Internal Markets Commissioner until 2004.

Copyright Reuters, 2011