I am writing this short essay because I am concerned and because I believe that I see a possible solution to Europe’s current problems. Though I do not claim to be an expert and I am sure that my suggestion is not without issues, I currently do not see a better alternative and I feel that I need to voice this vision. Perhaps I should say I am German.
1) Firstly, let me share my concerns:
I am deeply concerned that the rise of anti-European parties on the left and on the right will destroy the parts of Europe that we all love and will even endanger the freedom that we (my generation) has become accustomed to.
I am deeply concerned that the problems that are most obvious in Greece are the same problems in Spain, Portugal, France and Italy. I am concerned that Greece is in fact irrelevant in the overall discussion in terms of size, but that Europe cannot be as arrogant and foolish to dismiss the problem once “Podemos” gains in Spain and once Le Pen gains in France.
I am deeply concerned that the election of Marine Le Pen in France in 2016 or if not then, a few years later, will end the European Union and all its positives for everyone.
I am deeply concerned that no sane European politician of influence has yet relayed the truth: the Euro is a failure. Yet, abandoning the Euro and re-introducing national currencies does not mean we need to abandon the EU or its accomplishments
2) Next, let me share my beliefs:
I firmly believe that the EU as an idea and in many of its codified laws and institutions is first and foremost a good thing.
I firmly believe that Europeans everywhere, whether in Greece, Germany or the UK enjoy open borders to travel across the continent, enjoy a unified market place in which there are no import and export restrictions, as well as common product standards in some way and enjoy the fact that Europe as an overall economy has a relevant place in the world between the US and Asia.
I firmly believe that the right to work in any European country helps all Europeans. Last time I checked, foreign EU nationals working abroad paid an enormous multiple of taxes in excess of the social benefits they claimed in their host but not home country. EU emigrants working in foreign EU countries have made the respective economies and social systems stronger and not weaker.
I firmly believe that the EURO as a currency was a great idea but has utterly failed. Even though we do not admit this, Germany and its economy have massively benefited from the fact that its industries are the most competitive in Europe and its labor market, while far from perfect, has become very flexible with the Agenda 2010 reforms. In a single market with many different national currencies, other countries, such as Spain or France can somewhat balance this disadvantage by depreciating their currencies. This way, these locations are attractive for foreign investments as lower labor costs (calculated from the view of a foreign investor, NOT inside the respective country) will somewhat level the playing field. This instrument was taken away by introducing the EURO. Germany has benefited and European neighbours have in essence suffered through this lack of competitiveness (this is an extreme of “beggar thy neighbour”).
I firmly believe that we cannot blame Europeans in southern countries for increasing their levels of debt, when interest rates in a manner of one fortnight fall from 25% to 5%. Everyone in Germany, Finland and the Netherlands – ask yourself: if this kind of interest rate drop happened, would you not have taken up a loan to buy a house? Would you not, as a politician, have taken up a loan to make election promises? This was the most human of reactions. It has led to a world where Greece imports its tomatoes from Holland, as the Dutch are more competitive. To expect the southern European economies to pay for the mistake that is the EURO is simply unfair and impossible. By “paying” I include subjecting countries to labor market reforms that their constituents do not support. If the labor markets are to be reformed, it needs to be an internal decision, not an external one.
I firmly believe that a debt reduction alone (via haircut or more EU money) for Greece or other countries will not solve the problem as their economies will still be far less competitive vis-a-vis Germany’s and other northern countries’ and the cheap interest rates will still be inappropriate for their economies. They need their national currencies back.
I firmly believe that all the positive aspects of the European Union, such as free trade, the right to work across the continent and open borders are independent of the EURO or at least can be independent of the EURO if we want them to be. Remember – they were there before the EURO existed.
I firmly believe the European Commission needs to be abandoned and the power for European policies transferred to the European Parliament.
I firmly believe direct democracy needs to play a larger role in the EU.
I firmly believe that if we do not act now, the turn of events will act in our stead.
3) Now, let me sketch out my solution to the European debt debacle and the EURO:
I propose that the ECB buy all outstanding debt of European nations up to a point of bringing each and every member in the EU to a level of 25% debt-to-GDP ratio at face value.
I propose that in exchange for a debt ceiling of 50% of debt-to-GDP enshrined in each of the former EURO countries’ constitutions, the ECB forgives the entire debt that it bought. After this transaction, all countries in the EURO will be set at 25% of debt-to-GDP and the ECB will have a massive hole in its balance sheet that it will stuff by simply printing the necessary money. To prevent massive inflation, the ECBs money paid to banks can take the form of ECB debt. Thereby exchanging Greek or German bonds by ECB bonds that pay out on the same terms not Eurobonds though, because remember it is in essence money creation. Only a bit slower than at once.
I propose that this debt, along with all other capital will be translated back to national currencies and the EURO ceases to exist, just like it came into existence.
I further propose that none of the other agreements within the EU are being touched by this transaction.
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Okay. As I said at the start, I am no expert and I do not claim that this idea is flawless. However, I do claim that this would be a solution that has the least negative impact on all the citizens of the European Union. I do not believe that massive inflation is the consequence of this action, nor that it could not be combated appropriately by the national central banks if it were to surface (I am saying this is a problem that will be of much lesser significance than the current mess). In an aside I would like to remind you that the US Fed holds an approximate 35% of all US debt. Do we really believe, if worst came to worst, that the US central bank would ever demand payment on this debt? Hence, the US is already implementing a similar solution. Also, the new European national currencies will be much less endangered of suffering as all global central banks are in essence doing the same. I do admit that Gold would go through the roof, but I fail to see the issue with that. I also know that the “debt ceiling” in the countries’ constitutions may not last. But given that such a step would immediately free c. 20% of most countries’ tax revenue that is now used for debt service, I would be less concerned that the debt ceiling becomes an issue too soon. Countries will be awash in cash without increasing their debt.
Last but not least, let me stress that my solution is in no way close the ideas of right-wing populists such as AfD (Germany), UK IP (UK) or Front Nationale (France) and is not the idea of left-wing populists such as Syriza (Greece), Podemos (Spain) and the 5 Starmovement (Italy) either. If we want this to happen (i.e., preserve the EU without the EURO), we need to convince our “sane” European Politicians.
Let’s re-unite and end this crisis the European way.
