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* Thomas Jordan interim head of Swiss National Bank
* In 1994 thesis Jordan warned of high debts in Italy, Greece
* Said state default could lead to banking crisis
* Jordan still sees link between fiscal and monetary policy
By Catherine Bosley
ZURICH, Feb 7(Reuters) - Nearly two decades ago, the man now likely to become the head of Switzerland's central bank foresaw the neighbouring euro zone's troubles in a doctoral thesis, saying the likes of Ireland, Italy and Greece would not be able to control their debt.
Vice Chairman Thomas Jordan, who has served on the Swiss National Bank's governing board since 2007 and is currently interim chairman, also said a currency union gave some states the incentive to load up on debt and could lead to a banking crisis.
Jordan was thrust into the limelight last month when SNB chairman Phillip Hildebrand stepped down amid an uproar over a currency trade made by his wife.
In his dissertation for the University of Berne, published in 1994, roughly eight years before Europeans handled their first euro notes and coins, Jordan prophetically warned of strained public finances in exactly those countries that have actually needed a bailout or where debt levels seem particularly precarious.
"Achieving the 60 percent debt limit is hardly possible for Belgium, Ireland, Italy and Greece," he wrote. "Italy and Greece need to undertake major steps even to stabilise their debts."
Jordan is far from the only economist to express reservations about Europe's common currency, especially because the bloc lacked a fiscal union.
But his views are significant because he is likely to become SNB chairman, in charge of defending a cap of 1.20 per euro on the Swiss franc.
The cap was introduced in September to stop the currency soaring as investors sought a safe haven from the euro zone crisis.
Ernst Baltensperger, who supervised Jordan's thesis, said the fact it reads like a story of what actually transpired demonstrated his capacity to combine sharp analysis and policy judgement.
"A careful reading of his thesis further shows his great intellectual independence and tenacity in pursuing and developing complex arguments," Baltensperger said.
When countries with varying levels of debt form a currency union, interest rates for those with relatively low borrowings rise while they fall for those with high debts, Jordan wrote.
This raised the incentive for countries with high debts to borrow more within a bloc than they would alone. Yet because of the currency union, governments also lost the ability to monetise debts via inflation or debasement.
Exactly this has happened, leading to huge debt problems in Greece, Portugal, Spain, Italy and Ireland and stress elsewhere.
"The inability of a state to pay its debts could lead to a banking and financial crisis if these institutions hold large portions of national debt," Jordan wrote, forecasting investors' current anxiety about the large sums of Greek debt held by banks and insurers across Europe.
Among the most controversial episodes of the now two-year-old debt crisis is the European Central Bank's controversial decision to buy the bonds of troubled sovereigns.
Jordan explained in his thesis that if the financial system were to seize up due to a government's inability to fund itself, the central bank would have to act as a lender of last resort and effectively bail out the insolvent state.
"When a member state faces severe problems, the union, which is fundamentally a community of solidarity, cannot avoid giving financial assistance," he said. (Reporting by Catherine Bosley; Editing by Jeremy Gaunt)