Solving the Euro crisis: A federal Europe or parallel currencies?
European Union leaders are now advocating “More Europe” as a solution to the Euro Crisis. Watch Harvard professor Niall Ferguson explain to The World Economic Forum what a more integrated Europe would entail:
Those pro “More Europe” fail to acknowledge that any federal system implies a transfer of resources from the more efficient and productive core to the periphery.
For well performing countries like Germany a federal Europe would be expensive. According to Ferguson, it would cost the Germans up to 8% of GDP per annum for the foreseeable future. And with the very real possibility of a full-blown European banking crises as a result of a trigger, say a Greek default, is a federal Europe really a good idea?
Seems to me it’s time to start having a fresh look at the problems facing Europe. What’s been done so far isn’t working and it’s highly unlikely that giving more powers to Brussels would do the trick. Contrary to Ferguson’s belief however, there is massive discontent with the EU in Western Europe. Doubt that governments in that part of Europe will be re-elected if they cede more power to Brussels.
The unpredictablility of economics
In 2008 Queen Elizabeth asked top economists at the London School of Economics what caused the economic crisis. And they could not give her an answer. With hindsight we can patch together what happened and the domino effect that ensued. But until events unfolded nobody was certain what would happen. Six month later the British Monarch received a reply from British economist Thomas Palley stating that economists have become increasingly arrogant, narrow minded and unable to innovate.
We can now also conclude that it would probably have been better for the world if Hank Paulson had saved Lehman Brothers, like Warren Buffett suggested. But Paulson, presumably, didn’t understand what Lehman’s bankruptcy would cause and hence refused to do so. Or, as some believe, deliberately exported a US problem to the rest of the world.
The unpredictability of economics is a major problem because most available tools take time to come into effect. By the time they do, the economic landscape may have changed. Even if everybody agrees that solution x is the best way forward they could all turn out to be wrong.
Testing if a crisis can be solved by austerity
At the moment European politicians are for the first time in modern history testing if austerity can fix an economic crisis. It was tried, for instance, in the 1840s and failed. And it looks as if it will fail again. Austerity is unfortunately having a negative impact on growth and development in Europe. People and governments are not spending, which is fatal and goes against the economic health desired.
How about parallel currencies?
Professor Dirk Meyer, an economist based in Germany, has come up with an innovative solution to the financial problems facing Europe.
He rightly states that despite the fact that the Euro is presently causing huge economic problems, it is politically and economically a good idea. Consequently Meyer believes the way forward is to keep the Euro and, at the same time, bring back national currencies.
It’s the best solution to Europe’s problems I have so far come across. And it is my hope that EU leaders are seriously evaluating that option. You may beat them to it by having a look at his ideas in “Bring back Deutsche Marks! (Euros can stay)”. It could enable Europe to have the cake and eat it. Why does it have to be either or? With economies as diverse as say, Germany and Greece, having parallel currencies could very well be the way forward.
Do you believe a federal Europe is a good idea? Will it solve Europe’s current economic problems? Would having parallet currencies work? Is it likely there will be another Lehman trigger in the future? If so, would a federal Europe be more vulnerable or protected? Or maybe you are of the opinion that the current austerity programs will sort out Europe’s problems? Wen Jiabao said to EU leaders recently: “China will continue to invest in European government bonds and bonds issued by the European Financial Stability Facility”. So if the EU proceed with current policies Europe will, like the United States, end up heavily indebted to the Chinese government.
Video: WorldEconomicForum – You TubeGoogle+
Tags: China, Dirk Meyer, European Union, Federal Europe, Germany, Greece, Hank Paulson, Harvard, Lehman Brothers, London School of Economics, Niall Ferguson, parallel currencies, Queen Elizabeth, Thomas Palley, Warren Buffett, Wen Jiabao, World Economic Forum