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Markets right to query euro's future-Nobel laureate
LONDON Jan 28 (Reuters) - Investors anxious about the finances of Greece and other euro zone countries are right to question the future viability of the European single currency, Nobel laureate Eric Maskin said on Thursday.
Maskin, who won the Nobel prize for economics in 2007 for his work on "mechanism design theory", said flaws inherent in a one-size-fits all monetary policy for 16 differing economies were being exposed by the current crisis and would be again in any subsequent recessions.
"Investors would be well advised to consider seriously the possibility of the single currency being undone," Maskin told journalists at an investor conference organised by asset manager Pioneer Investments. "I don't see an obvious solution."
Greek government bond yields rose again on Thursday to a record high premium over Germany's euro zone benchmark as investors continue to fret over soaring Greek debts and deficits and the country's ability to cut its budget and raise new funds. "To the extent that different countries in the euro zone are at different points of the business cycle, then their monetary needs are different -- but they are constrained over their use of interest rates and control of the money supply," said Maskin.
"If there's not sufficient homogeneity, there's going to be conflict. Every time there is a serious economic downturn, this is going to be a problem," said Maskin, a professor at the Institute of Advanced Study in Princeton, New Jersey.
Maskin spoke at the conference alongside two other Nobel laureates -- 2001 winner Michael Spence and 1997 winner Robert Merton.
Spence, who won his prize alongside Joseph Stiglitz for work on information flows and market development, was more optimistic about the euro's future.
"I do not expect the euro zone to collapse under the pressure - it's way too valuable," Spence told the investor group, adding that he expected "ad hoc interventions" and "creative solutions on the spot" to see the zone through this current crisis.
"Greece strikes me as a situation that can't be fixed internally. I think external help is going to be required to help Greece, although I have no idea right now if that's forthcoming."
Spence said the euro zone needs to build up an institutional framework for dealing with these sorts of crisis in future.
"At some point the fiscal fragmentation of Europe will have to be dealt with."
Merton, whose Nobel was awarded to him and Myron Scholes for their work on options pricing and who was on the board of hedge fund Long Term Capital Management when it collapsed in 1998, declined to comment on the Greek and euro zone situations. (Reporting by Mike Dolan; editing by Stephen Nisbet)
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