What Would Keynes Have Thought of the European Crisis

Abstract

Keynes died before the initiation of measures for economic and political union in Europe. However, he did have very clear views about the limitations on national policy space of an international standard which apply pari passu to the single European currency and to the problems created by international capital flows which have been part of the movement to a Single European market. At the same time, his proposal for an International Clearing Union, which was rejected in favour of the US proposl for a International Stabilisation Fund at Bretton Woods, provided the framework for one of the most important institutions in European Recovery proposed under the US Marshall Plan: the European Payments Union. Richard Kahn, one of Keynes collaborators put forward a regional version of the Keynes Plan, the ‘Discount Scheme’ which provides an indication of how Keynes might have evaluated the EPU. Based on Kahn’s proposal, a possible modern application of Keynes’s ideas on a sub-regional level is proposed as a means of avoiding the drawbacks Keynes noted of a single currency with open capital markets.