Will Euro Survive
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Will EU survive the second decade of the new millennium?
Contents 1. ORIGIN 5 1.1 Perceived benefits 6 1.2 Rules governing union (Stability and Growth Pact and Maastricht Treaty) 6 2. Fault lines 6 3. current SCENARIO 7 4. WHY SAVE EURO? 9 4.1 ALTERNATIVES 10
4.1.1 Split 10
4.1.2 Institutionalised austerity and ECB bailing out 12
4.1.3 ECB lends money to IMF and latter disburses loans with stiff conditionality’s 12
4.1.4 Creation of European treasury/ Empowering EFSF 12
4.1.5 United States of Europe and issuance of Euro bonds: 13 5. WAY FORWARD 14
TABLE OF FIGURES
Figure 1: Prospects of the financial sector and sovereign spreads 7 Figure 2: History Repeats 9 Figure 3: Euro-area north-south divide 10 Figure 4: GDP Growth Forecasts, 2011 (in percentage) 13 Figure 5: Current account balances of PIIGS versus Germany, UK, US 14 Figure 6: Unemployment rate difference between Periphery and Germany 14
EXECUTIVE SUMMARY:
Today PIIGS juggernaut has transformed into Euro zone’s Frankenstein monster. As the euro was designed to be the Roach Motel of currencies, there is no legal provision for departure. The cost of departure of either Germany or France is forbiddingly high, estimated at about as high as 40-50% of their GDP by UBS.
The paper traces evolution of Euro, perceived benefits which led to its creation, the fault lines,and the similarities with Global financial Crises, the impact of its deleveraging cycle and possible alternatives.While the costs of efforts to save the euro are justified by the claim that the alternative would be too dreadful to contemplate, there lies an important lesson to be learnt from Argentina. A potential fiscal union on lines of United Europe is envisaged which would require transforming European Financial Stability Facility (EFSF) into full-fledged treasury thereby giving European Union’s monetary Union a political leg to stand on.
“I am sure the Euro will oblige us to introduce a
Will EU survive the second decade of the new millennium?
Contents 1. ORIGIN 5 1.1 Perceived benefits 6 1.2 Rules governing union (Stability and Growth Pact and Maastricht Treaty) 6 2. Fault lines 6 3. current SCENARIO 7 4. WHY SAVE EURO? 9 4.1 ALTERNATIVES 10
4.1.1 Split 10
4.1.2 Institutionalised austerity and ECB bailing out 12
4.1.3 ECB lends money to IMF and latter disburses loans with stiff conditionality’s 12
4.1.4 Creation of European treasury/ Empowering EFSF 12
4.1.5 United States of Europe and issuance of Euro bonds: 13 5. WAY FORWARD 14
TABLE OF FIGURES
Figure 1: Prospects of the financial sector and sovereign spreads 7 Figure 2: History Repeats 9 Figure 3: Euro-area north-south divide 10 Figure 4: GDP Growth Forecasts, 2011 (in percentage) 13 Figure 5: Current account balances of PIIGS versus Germany, UK, US 14 Figure 6: Unemployment rate difference between Periphery and Germany 14
EXECUTIVE SUMMARY:
Today PIIGS juggernaut has transformed into Euro zone’s Frankenstein monster. As the euro was designed to be the Roach Motel of currencies, there is no legal provision for departure. The cost of departure of either Germany or France is forbiddingly high, estimated at about as high as 40-50% of their GDP by UBS.
The paper traces evolution of Euro, perceived benefits which led to its creation, the fault lines,and the similarities with Global financial Crises, the impact of its deleveraging cycle and possible alternatives.While the costs of efforts to save the euro are justified by the claim that the alternative would be too dreadful to contemplate, there lies an important lesson to be learnt from Argentina. A potential fiscal union on lines of United Europe is envisaged which would require transforming European Financial Stability Facility (EFSF) into full-fledged treasury thereby giving European Union’s monetary Union a political leg to stand on.
“I am sure the Euro will oblige us to introduce a
References: 11. Lessons from the Euro Crisis July 21, 2010 : Joint Economic Committee Republicans 12 15. Sovereign Debt Crisis in Greece: Is There a Way Forward? : Rohit. Economic and Political Weekly (July 10, 2010 )vol xlv No 28 16