There ARE Creative Solutions to the Euro Saga

By Shlomo Maital     

  

  I know, it is hard to believe, but —  European leaders have had 21 summit meetings to discuss how to save the euro, since the crisis began.  Yet they are no closer to a creative solution than they were at the very first such meeting.  I wonder if those EU leaders, Cameron, Merkel, now Hollande, understand they are writing a new chapter in Barbara Tuchman’s March of Folly –   Brancusi’s “endless column’ has only 17 chain links, EU’s endless summits have 21….

   Today’s Global New York Times reports that three leading economists have each come up with a creative solution to the euro problem. 

  • ·         Graham Bishop:  “Set up a new euro zone fund, to raise money for individual governments, and with each government’s ability to borrow well defined and capped”.  A Euro bond avoids the problem ‘labelling’, where “Spain” or “Greece” brings exorbitant interest rates neither govt. can afford.
  • ·         Markus K. Brunnermeier, Princeton Univ.:  “Create a new European debt agency, that will buy govt. bonds (“troubled assets”) and finance the purchase by selling bonds, in two categories: low-interest debt with zero risk, ultra-safe (“you’ll always get your money back, guaranteed”; and high-interest debt carrying much higher risk (i.e. you may not get your money back).   
  • ·         Daniel Gros, European Policy Studies: “Make the ESM, European Stability Mechamism, into a bank, licensed, that could buy the distressed bonds of Spain and Italy, and hence reduce their borrowing costs.”

   Each of these plans could work.  ANY plan is better than the current no plan situation.  While Europe dithers, the world sinks into stagnation… only now, it is stagflation, because as happened in 1971,  food prices are rising right at the time when the world economy is slowing. So we get stagnation (low growth or zero growth) and inflation together, a lethal combination. 

     Let Europe take action. ANY action.  Any plan, provided it is big enough and sweeping enough, is better than having another 21 summits that lead nowhere.  George Bernard Shaw once said that if you lined up all the economists in the world in a straight line, they still would not reach a conclusion.  Alas, that is even more true of Europe’s leaders.  A few economists HAVE reached a conclusion. But none of the political leaders have. And you and I are paying the price. 

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