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A viable currency union
Jun. 21st, 2011 12:05 pmAfter quite a bit of debate, some of us have thrashed out how a viable currency union in the form of the Euro could operate - without the creation of a European Finance Ministry that constantly funds money to depressed areas.
Pretty much, it would be the same Euro as it currently exists, with its interest rates set by the ECB etc etc.
Maximum country debt levels are stipulated with 2 tripwire points.
1) if breached by minor levels, the European Monetary Fund can mandate investment & corrective action.
2) if breached by significant levels, the country is automatically ejected from the currency block and their membership of European Institutions is suspended. Note the emphasis on the automatic ejection.
All Euro-bonds are dual-priced in Euros and local currency, so, if ejected, the local currency would become the trading value, allowing the country to deflate.
To protect against financial disturbance, a European Stability Fund would exist – not to protect the ejected country, but to protect the remainder of the EU.
Countries that are ejected will be eligible to re-apply for Euro-membership after they have got their house in order.
Its not a *great* plan - being a Heath-Robinson compromise on international finance, but it builds in more flexibility to the system than the current mess. And, of course, Heath-Robinson approaches are pretty much the lifeblood of European political institutions.
S
Pretty much, it would be the same Euro as it currently exists, with its interest rates set by the ECB etc etc.
Maximum country debt levels are stipulated with 2 tripwire points.
1) if breached by minor levels, the European Monetary Fund can mandate investment & corrective action.
2) if breached by significant levels, the country is automatically ejected from the currency block and their membership of European Institutions is suspended. Note the emphasis on the automatic ejection.
All Euro-bonds are dual-priced in Euros and local currency, so, if ejected, the local currency would become the trading value, allowing the country to deflate.
To protect against financial disturbance, a European Stability Fund would exist – not to protect the ejected country, but to protect the remainder of the EU.
Countries that are ejected will be eligible to re-apply for Euro-membership after they have got their house in order.
Its not a *great* plan - being a Heath-Robinson compromise on international finance, but it builds in more flexibility to the system than the current mess. And, of course, Heath-Robinson approaches are pretty much the lifeblood of European political institutions.
S