September 25, 2011

How to save the Euro?

No one has probably missed the the Euro-cooperation has some problems? The biggest problem today is Greece, but other members in the Euro-zone have problems as well. But it is not just the Euro that is at risk, but the future of the European Union and the health of the world economy are at risk as well. Remember what happened when Lehman Brothers collapsed and that no one thought that the collapse of the bank would spread around the world. But what is the solution?

The Economist believe they have a solution - it is a costly one - but the alternative is far worse. A rescue must involve the following things:
  • Find which of the countries are deemed illiquid and which are insolvent. Give unlimited backing to the solvent countries and restructure the debt of those that can never repay it. People are today guessing whether the countries have good finances - or not. It is important to restore the confidence again. 
  • Ensure that Europe’s banks can withstand a sovereign default.
  • Shift the Euro-zone’s macroeconomic policy from budget-cutting towards growth. Budget-cutting is self-defeating.
  • Begin the process of designing a new system to stop this mess we are in from happening again.

One can also ask if the Euro was mis-sold or whether it was a terrible idea in the first place? Is the Euro worth saving - or would it be cheaper to break it up now?

Source: The Economist