I am not qualified to pronounce on economic or financial matters but the following idea, advanced by the former head of the ECB, looks as if it might actually work.
(Reuters) - Europe could strengthen its monetary union by giving European politicians the power to declare a sovereign state bankrupt and take over its fiscal policy, the former head of the European Central Bank said on Thursday in unveiling a bold proposal to salvage the euro.
The monetary union has always defied economic principles, because the euro was launched ahead of European fiscal or political union. This has caused strains for countries running huge budget deficits - namely Greece, Portugal, Ireland, Spain and Italy - that have led to financing difficulties and over-stretched banking systems.
For the European Union, a fully fledged United States of Europe where nation states cede a large chunk of fiscal authority to the federal government appears politically unpalatable, Trichet said.
An alternative is to activate the EU federal powers only in exceptional circumstances when a country's budgetary policies threaten the broader monetary union, he said.
"Federation by exception seems to me not only necessary to make sure we have a solid Economic and Monetary Union, but it might also fit with the very nature of Europe in the long run. I don't think we will have a big (centralized) EU budget," Trichet said in a speech before the Peterson Institute of International Economics here.
"It is a quantum leap of governance, which I trust is necessary for the next step of European integration," he said.
At least it's an idea.
And a bad idea according to my brother, who knows far more about these things than I do!
ReplyDeleteThis comment has been removed by the author.
ReplyDelete