Friday, 20 May 2011

Eurozone Failures - Time for Eurobonds and a Radical Rethink

Tom McDonnell: Two quick links:

Guillermo De La Dehesa of CEPR has put together a very useful one-pager that should be mandatory reading for the hapless decision makers bumbling their way through the Euro debt crisis. De La Dehesa lays bare most of the flaws in the current strategy and identifies the most efficient way to resolve the crisis - create a Euro zone bond market as large, deep, diversified and liquid as that of the US treasury bondmarket.

Meanwhile Hugo Radice over at the SEJ also calls for a radical policy rethink and laments the institutional inertia and indecision plaguing the Euro zone.


Martin O'Dea said...

As Mr De La Dehesa highlights and as many others have done also - the question that is at stake here is the validity of a single currency in a partial political union; and this arguement is being played out with the Irish economy and others as the gradual sacrificial lambs. I copied below straight from the website of the IMF. Bearing in mind the comments from Daniel Chopra regarding the problems associated with the Irish situation and the actions being taken by the European arm of our so called troika of friends. Why not exit from the ECB element of the bailout? What would befall us then? Well the EU situation would be moved closer to a necessary solution. We would find ourselves in debt to someone else. We would be paying a lower interest rate and would have a creditor committed to growth. We would be indebted to someone who does not see it as correct that we cover all private banking debt and we would still be a part of the E.U. what happens with the monetary union will unfold a little bit quicker. Below is under the about section in the IMF's website. Academic economic arguements aside we really should not just accept our submissive role. I think the last two words in the first sentence are particularly significant.

The IMF provides loans to countries that have trouble meeting their international payments and cannot otherwise find sufficient financing on affordable terms. This financial assistance is designed to help countries restore macroeconomic stability by rebuilding their international reserves, stabilizing their currencies, and paying for imports—all necessary conditions for relaunching growth.

Slí Eile said...

@Tom I find the de la Dehesa analysis limited in regard to labour costs and the position of Germany. for a more thorough account of product complexity in understanding recent trends in UC, prices and productivity the following linked paper is useful.

Tom McDonnell said...

@ Slí Eile

Thanks for the link. A very useful paper.