The way out of European crisis is… easy!

First a resume of the situation: the Euro will collapse because it is not a sovereign currency: the ECB is not a lender of last resort and weak member states pay too high interest on their debt, yet cannot devalue. The electorate will fall for populists of the left and right, is just a matter of time. Those will sink us deeper and deeper.
Germany is trapped in a superiority complex, blocking the road, and meanwhile printing Deutsche Marks.
I do not know how to make Germans understand that they are going to throw Europe and ultimately Germany into chaos. It’s extremely difficult to divert Germans from a decision, if they believe is the right one (in general, there are many reasonable Germans as well).
But perhaps, if there was a clear mechanism for solving the situation, everybody would choose cooperation vs. Nationalism.
So what’s this mechanism?:
Instead of doing some ridiculous form of Eurobonds, you move drastically to Eurobonds.
As of a cut-off date ALL countries in the Euro (yes also Germany) will not issue bonds anymore. The old bonds will continue their course, of course.
The EU will ask money on the markets for the aggregated demand of all member states. The debt that members states contract with the EU will be marked as more senior than any other. The EU will exercise a big mark up: for example if the aggregated interest it pays to the market is 3%, it will ask an aggregated 3.6% from the members. In the way this mark up is distributed among the members lays the secret of success. It will be based on predetermined rules based on how far a country (government) is from health and discipline. Countries “in order” will pay to the EU no mark up, fully reaping the benefits of cooperation. Undisciplined countries will have to pay a premium (this is a double tax, because these countries are badly governed to start with), but this premium will be far less than current market rates (which only create a self fulfilling prophecy of default). The EU will administer the money coming from markup for common policies including the convergence of poor areas with wealthy ones. Rules will be very strong and ideally protected from political decisions, with really painful measures for those countries that would try to “game the system”, including the possibility of expulsion from the Euro. If a country exits the EU will also have to leave the Euro. If a country reneges freedom (Hungary is getting there) must be expelled.

This plan would also immediately lower the risk on “old debt” because each country will have its burden progressively decreased.

Working Together European countries can stop this self reinforcing “paper” madness.

Questa voce è stata pubblicata in crisis, debt, europe, policy e contrassegnata con , , , , , . Contrassegna il permalink.

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