Halting Europe's Downward Spiral A Master Plan to Save the Euro

Economics experts from across Europe released a report on Tuesday offering a roadmap to a stable euro. The plan seeks to reconcile German calls for greater fiscal responsibility with the desire of beleaguered Southern European countries to introduce euro bonds.

The think tank Notre Europe (Our Europe) has released its prescription for a healthier euro. Here, the euro symbol sculpture in Frankfurt.
DPA

The think tank Notre Europe (Our Europe) has released its prescription for a healthier euro. Here, the euro symbol sculpture in Frankfurt.


The European Central Bank (ECB) is responsible for determining the monetary policies of 17 countries, but each country decides for itself what it should spend and how much level of debt it can sustain. Most experts agree that the euro is incapable of surviving this faulty design. By now, many bold visions have emerged for the future architecture of the euro zone. But it is still questionable how realistic they are -- despite the severe crisis, the nation states of Europe are still unwilling to give up sovereignty.

"There is some good news," says Henrik Enderlein. The German economist believes the currency can be saved if countries are willing to do the minimal amount of deeper integration that is absolutely necessary to rescue the euro. Together with eight other prominent experts from several European nations, Enderlein has in recent months worked out a proposal for saving the euro that is likely to draw greater attention than previous efforts. The Paris-based think tank Notre Europe released the report, titled "Completing the Euro" and completed under the auspices of former European Commission President Jacques Delors and former German Chancellor Helmut Schmidt, on Tuesday.

The ideas also have weight because they are expected to be considered as part of proposals being prepared by Herman Van Rompuy, the president of the European Council, the powerful body that represents the leaders of the 27 EU member states, and ECB President Mario Draghi. It is expected that those proposals will be presented to EU leaders at this week's summit in Brussels.

Common Borrowing, a Bank Regulator and Deposit Insurance

In addition to completion of the internal market, Enderlein and his colleagues are also calling for a banking union with a central regulatory authority for financial institutions and a unified deposit protection fund for customers' savings, inspired by the United States' Federal Deposit Insurance Corporation. The experts also have two proposals in their bag that look like classic compromises and, thus, may have good chances of being implemented.

One calls for a strengthening of fiscal surveillance of national budgets. If a country no longer had access to financial markets, it would incrementally give up sovereignty over its budget, following the principle that "sovereignty ends when solvency ends." In these cases, a European Debt Agency would be activated that would back all countries that are part of the common currency zone.

If a country threatened with insolvency only needed to borrow a small amount from the common lending pot, then the conditions for reform it had to accept would be small. But the larger the need, the greater the amount of decision-making sovereignty the country would have to give up.

The idea behind the proposal is to reconcile the Southern European call for euro bonds with the German dictate that joint liability can only be acceptable if accompanied by a corresponding surrender of decision-making autonomy.

Compensating for Economic Fluctuations

The second proposal is also based on the principle of collective control. Under the plan, in addition to an EU budget, a stabilization fund would also be established that could help to compensate for economic fluctuations. The fund would be controlled by all national parliaments.

If it were in place now, the Southern European countries would be able to obtain aid from it, would not be forced to economize as much and would be able to stop themselves from spiralling downward economically. And if Germany were to one day fall into recession, then the federal government's budget would also be propped up with billions of euros from Brussels.

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awareadams 06/26/2012
1. No solution without "haircut" debt reductions
I write as an American lawyer familiar with our corporate reorganization laws, "Chapter 11" proceedings. These enable an insolvent debtor who lacks funds to pay current bills, to get relief from debt load, reorganize, and get on a paying basis to stay in business. The analogy applies to Italy, Spain, and Portugal. Greece is beyond any help, and must leave the Euro. Any reorganization necessarily involves the creditors accepting less than 100% of their claim: they must agree to "haircuts" in order to save the insolvent debtor. When Spain, and Italy and France come up with plans that force their creditors to reduce the value of their claims (a form of "default"), then a new Euro and viable solution to the Euro problem will be possible and the currency saved. Without debt reductions by creditors, no solution is possible.
sbanicki 06/27/2012
2. Make Investors Believe
"The challenge for Mr. Draghi and the plan’s authors — Herman Van Rompuy, president of the European Council; José Manuel Barroso, president of the European Commission; and Jean-Claude Juncker, head of the euro group of euro zone ministers — will be to package their plan in a way that makes investors believe something will get done.", European Leaders to Present Plan to Quell the Crisis Quickly, By JACK EWING, June 16, 2011 The key phrase above is "...makes investors believe...". No plan works if there is not a truly politically United States of Europe. Anything less is smoke and mirrors. Europe is looking for something that will buy time until the long-term solution can be found. You need to be prepared to adjust to a failed Euro! Europe is in a mess and the world is so intertwined that we cannot avoid it impacting our economy. The euro seems doomed to fail because it is dependent on Germany giving back much of the gains received from the Euro Zone experiment. This is not likely unless Germany concludes they will lose even more by letting Europe continue its downward spiral. They were able to significantly boost imports, which in turn helped them reunify their nation after East Germany's collapse. If, when the euro zone fails, the consequences may be as bad as our 2008 meltdown. It is hard to envision Europe becoming a united nation. The United States consolidated a major portion of North America by obliterating the nations that previously occupied the land - the Native American Indian. This will not happen in Europe.http://bit.ly/FF1206bc2
Eleos 06/27/2012
3. No more sticking plasters
The markets distrust compromises, especially those cooked up by former leaders who helped to create the mess, and whose remaining years it must be suspected will be partly devoted to upholding their reputations. There are broadly two camps: the fiscally prudent championed by Germany and those who wish to inflate their way out. They should divide, the current Euro remaining with the larger block led by France and a new currency for the others. A further problem is the markets. Markets need only the very smallest of returns in percentage terms to make a killing. This is because derivatives allow speculators to massively leverage their bets. This problem can easily be dealt with by imposing a tax set at a greater percentage of the underlying assets than the gain expected in most cases by the speculators.
Inglenda2 06/27/2012
4. Euro without basis
A common currency can only succeed where a common basis of tax, employment and social insurance systems exist. The failure to provide such a stable fundament during the introduction of the Euro has caused the current crisis. To support banks, which have shown no signs of responsibility to their customers, rather than to help those who have been misled by their financial advisers, is no answer to this problem. This leads to nothing more than a devaluation of the European currency. Germany would do well not to give any more financial help to incapable governments - European or national – before a common foundation of economic regulations has been agreed to.
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