Herman Van Rompuy, president of the European Union, has blamed the strength of the euro in recent years for blinding the eurozone to its underlying fiscal problems.

He also criticised financial markets for overreacting to those economic difficulties and being too heavily influenced by “rumours and prejudices”.

He said: “The markets were too indulgent in the first decade, but now they overreact a lot of the time to small incidents.

“What went wrong wasn’t what happened this year. What went wrong was what happened in the first 11 years of the euro’s history. In some ways we were victims of our success.

“The euro became a strong currency with very small interest rate spreads [on government bonds]. It was like some kind of sleeping pill, some kind of drug. We weren’t aware of the underlying problems.”

In an interview with the Financial Times, Mr Van Rompuy said that the 16-nation bloc had been on the edge of a breakdown last month that could have caused a world crisis. But European leaders now understood that the way forward was to implement politically unpopular but necessary economic reforms, such as opening up labour markets and raising the retirement age, he said.

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