Solving the European debt crisis

The European Union (originally the European Coal and Steel Community) was created in the 1950s to prevent repeating the disastrous mistakes of the 1930s, and yet today, it seems as though nothing has been learned.

Once again Europe is on the brink. There has been an abject failure by Europe’s leaders to adequately tackle the euro crises head-on. Greece, Ireland and Portugal are shut out of the bond markets, and it looks like Spain and Italy will follow shortly.

We are told that these two are too big to save. So, what happens next?

As far as I can make out it’s anybody’s guess.

Angela Merkel, the only EU leader with the ability to rescue the euro, for political reasons or otherwise, has acted at an imperceptible speed and has failed to adequately convey to the German public the calamitous situation that is rapidly enveloping Europe and the dire consequences for the German economy if the euro were to fail.

The idea of Eurobonds is understandably abhorrent to most Germans who detest the idea of sharing the debt of other countries, particularly when their citizens are among the most prudent. Who could blame them?

But we should not forget that the euro has been very good for the German economy whose exports have rocketed with a currency valued lower than the deutschmark.

Recently a proposal put forward by a group of German economists known as the German Council of Economic Experts, also rather sagely known as the “wise men”, offers a compromise where the debt of the euro countries is split into two parts.

The portion of up to 60% of each nation’s gross domestic product stays on the books, unchanged, while the portion of nations’ debt exceeding 60% of GDP is transferred into something called the European Redemption Fund.

The 17 euro countries are still liable for the portion of their debt that’s transferred in the fund.

However, they would have 20 or 25 years to pay it off.

Legally, all 17 nations would be jointly liable for the debt placed in the fund. There is no perfect solution to the crises, but the one proposed may be enough to prevent the collapse of the euro without allowing for so-called moral hazard.

Basically, it’s both a carrot and a stick approach.

John Bellew

Dunleer

Co Louth

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