Thursday, May 31, 2012

How To Fix Eurozone

There is a lot of talk on what to do with Eurozone. Greece should leave. Spain and Italy should follow. Blah, blah, blah. There is only one sensible idea: create analog of FDIC in Europe. It will really stop runs on banks and protect depositors. But to implement this, Eurozone should get rid of just one country. It's not Greece, not Ireland, not Portugal. It's (hold your breath) Germany!

Thing is, Germany reaps all the benefits of Euro without sacrificing much. It's currently on a roll after many years of stagnation caused by unification. Economy is strong, exports are strong too, most of them are going to Eurozone. Now, other countries should make Germany face a choice: adopt sensible policies, like bank deposit insurance, stimulus for Eurozone economies, help to troubled countries (conditional, yes, but please, no austerity which completely kills economies). Or other countries kick Germany out of Eurozone. There are ways of doing this, for example they all leave Eurozone, and create their own common currency. Most probably Germany would be forced to agree to reforms. If not, well, it's going to lose the most: new Euro would be much weaker than new Mark, resulting in stagnation imported by Germany.

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