Abstract
After reviewing the main determinants of the current eurozone crisis, this paper discusses the feasibility of introducing fiscal currencies as a way to restore fiscal space in peripheral countries, like Greece, that have so far adopted austerity measures in order to abide by their commitments to eurozone institutions and the International Monetary Fund. We show that the introduction of fiscal currencies would speed up the recovery, without violating the rules of eurozone treaties. At the same time, these processes could help transition the euro from its current status as the single currency to the status of “common clearing currency,” along the lines proposed by John Maynard Keynes at Bretton Woods as a system of international monetary payments. Eurozone countries could therefore move from “Plan B,” aimed at addressing member-state domestic problems, to a “Plan A” for a better European monetary system.
Highlights
An increasing number of economists and commentators believe that the current economic policy path that some eurozone countries are following will undermine the rules of the European Monetary Union (EMU) originally put in place in the Maastricht Treaty in 1992 and eventually lead to either the collapse of the European cohesion or a period of prolonged stagnation
In this paper we have argued that the current rules governing the eurozone are the result of a faulty architecture and an incomplete political process towards greater European integration, which should it have been completed would have instituted a mechanism of automatic stabilizers being channeled through a European Treasury with a sufficient budget, as is the case with the US
Be that as it may, we have argued that current account imbalances that were already large for some countries when the euro was introduced were exacerbated by the adoption of the common monetary policy
Summary
An increasing number of economists and commentators believe that the current (spring 2016) economic policy path that some eurozone countries are following will undermine the rules of the European Monetary Union (EMU) originally put in place in the Maastricht Treaty in 1992 (subsequently modified in 2007 by the Lisbon Treaty, and in 2011 with the “Sixpack”) and eventually lead to either the collapse of the European cohesion or a period of prolonged stagnation. The second assumption inspiring the logic of the Maastricht Treaty, and its subsequent modifications, was based on the ordo-liberal economic dogma that prevailed and continues to this day, mainly by Germany’s dictum It asserts that markets: would self-adjust towards full employment; the central bank would be independent from governments and be concerned only with price stability; and national governments would be responsible for fiscal policy subject to the Treaties’ guidelines; guarantee property rights; and smooth the functioning of markets irrespective of the asymmetries in their real economies. We discuss how some simple changes in the functioning of the ECB Target system may lead the way to a more sustainable monetary architecture; in the final section, we offer our conclusions
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