Former Federal Reserve Chairman Alan Greenspan discusses fallout the U.K.’s Brexit referendum, U.S. economic growth, wage and economic stagnation, central banks, low productivity, and his call for inflation in the U.S. economy. He speaks with Bloomberg’s Michael McKee and Tom Keene on Bloomberg.
U.K. policy makers miscalculated and made a “terrible mistake” in holding a referendum on whether to quit the European Union, in which voters opted to leave the bloc, former Federal Reserve Chairman Alan Greenspan said.
That decision led to a “terrible outcome in all respects,” Greenspan, 90, said in an interview with Bloomberg Surveillance on Monday in Washington. “It didn’t have to happen.”
The U.K. stunned the world last week after voting to leave the EU after more than four decades, a move that sent financial markets into turmoil. The pound on Monday extended its drop to touch the lowest against the dollar since 1985, while central bankers around the world have pledged to support liquidity.
It’s now likely that Scotland, whose majority of voters wanted to stay in the EU, will have another referendum on its own independence, Greenspan said. He predicted such a vote would be successful, and Northern Ireland would “probably” go the same way.
Greenspan said he did not have sympathy for the idea that the U.K. would be better off outside the EU, despite the problems the bloc faces in a structure where countries with different economies and cultures share the same currency.
“The EU is fundamentally a very good idea,” Greenspan said. “It’s a free trade-zone structure, which we need an awful lot of, so that the choice of Britain to stay in the EU and yet out of the euro zone was, I thought, the most sensible action that could be taken.”
The U.K.’s decision to exit is a sign that the EU and euro zone need readjustment away from a model where northern nations are supporting those in the south, Greenspan said.
The euro zone is the truly “vulnerable institution,” Greenspan said, primarily due to Greece’s inclusion in its structure. “Get Greece out. They’re a toxic liability sitting in the middle of a very important economic zone.”