Thursday, August 18, 2016

"How to save the Euro"

Interesting discussions of the state of the EU and the Euro from 2011 to now. Very interesting (IMHO) also because of the recent Brexit.

How to save the euro | The Economist

'' [2011] Instead of austerity and pretence, a credible rescue should start with growth and, where it is unavoidable, a serious restructuring of debt. Europe must make an honest judgment about which side of the line countries are on. 


Put our plan to many Europeans—creditor Germans, debtor Greeks or Eurosceptic Britons—and they may moan that this is not what they were promised when the euro was set up. Completely true, and sadly irrelevant. The issue now is not whether the euro was mis-sold or whether it was a terrible idea in the first place; it is whether it is worth saving. Would it be cheaper to break it up now? And are the longer-term political costs of redesigning Europe to save the euro too great?

The sobering truth about the single currency is that getting in is a lot easier than getting out again. Legally, the euro has no exit clause. ''

How to Save the Euro by George Soros | The New York Review of Books [2012] '' We remain in the acute phase of the crisis; the prospect of a meltdown of the global financial system has not been removed. ...

My proposal is to use the European Financial Stability Facility (EFSF), and its successor the European Stability Mechanism (ESM), to insure the European Central Bank (ECB) against the solvency risk on any newly issued Italian or Spanish treasury bills they may buy from commercial banks.2 Banks could then hold those bills as the equivalent of cash, enabling Italy and Spain to refinance their debt at close to 1 percent. ... This would put their debt on a sustainable course and protect them against the threat of an impending Greek default. ...The European financial authorities rejected this plan in favor of the Long-Term Refinancing Operation (LTRO) of the European Central Bank, which provides unlimited amounts of liquidity to European banks—not to states themselves—for up to three years.
... The difference between the two schemes is that mine would provide an instant reduction in interest costs to governments while the one actually adopted has kept the countries and their banks hovering on the edge of a potential insolvency. I am not sure whether the authorities have deliberately prolonged the crisis atmosphere in order to maintain pressure on heavily indebted countries or whether they were driven to their course of action by divergent views that they could not reconcile in any other way.  

Stiglitz: How to save a broken euro – [2014] ''Joseph Stiglitz is an American economist and a professor at Columbia University. A recipient of the Nobel Prize in Economic Sciences, he is also a former senior vice-president and chief economist of the World Bank ...
As we survey the damage from the years of crisis and recession in Europe that finally seems to be ebbing, there is a sigh of relief that the Eurozone has not fallen apart. But the return to growth is a far cry from a return to prosperity. At the current pace of “recovery,” no return to normalcy can be expected until well into the next decade. Even Germany, which is often touted as the most successful country, has grown by a miserly .63 percent over the past 5 years — a rate that in other circumstances would be called an utter failure. The euro is not an end in itself. It was supposed to be the means to a more prosperous Europe, with higher living standards. For the Eurozone as a whole, incomes today are some 20% below what they would have been, had the growth trend that prevailed in the years before the euro continued. Europeans have been asked to make continuing further sacrifices — lower wages, lower benefits, weakened systems of social protection — all in the name of saving the euro.


The extreme austerity that many European countries have adopted in the wake of the crisis has almost been a knockout blow. A double-dip recession and soaring unemployment are terrible costs to pay for slightly improved current account balances – which are better in most cases more because imports have decreased than because exports have increased. ''

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