The rebirth of the eurozone
Are the recovery policies of the eurozone financial and economic crisis really answering the complexity and diversity of the problems facing all member states? Not really. The response is too one-sided, mainly exports and austerity drive. In particular, current policies ignore the fact that the euro crisis is a systemic crisis that cannot be overcome with more. The euro crisis survival analysis showed in the form of innovative interactive feasible alternative, not only can drive the economic growth in the eurozone, but also can ensure the economic recovery can be sustained and inclusive people across Europe. This would require a rethink of debt restructuring, raising investment levels without triggering a repeat of excessive indebtedness and systemic changes in the financial sector. Such a strategy should be combined with a wage – driven growth strategy based on more and better work to reverse the current competitive strategy of the eurozone’s suppliers’ bottom and export dominance. Only then would a single currency be a healthy future.
For some of the most indebted countries in the euro zone, one of the eurozone’s most important steps is to reduce the debt burden of its members to a more sustainable level. Benoit Coeure, a member of the ECB’s executive board, recently said: “the question is whether to restructure the debt, but in what way.” The challenge for kohler is to find a way to restructure European debt without further damaging Europe’s economy. This includes private investors and creditor governments, such as Germany and the Netherlands, who may have to take some losses and acknowledge that the governments of heavily indebted countries cannot repay their debts or end up defaulting.
So far, the northern eurozone countries have been reluctant to consider such a big structural adjustment, even against the pressure of the international monetary fund (imf), such as in the case of Greece, it must put debt trading on the table. The Nordic countries, however, cannot accept debt relief because they fear it will encourage the government to ease draconian public-spending cuts (known as economic moral hazard). These governments believe that the new financial turmoil is risky. As a result, European creditors are in principle accepting only interest rate cuts and the idea of deferring debt payments.
Unfortunately, this policy has not worked well so far. Agent research report “debt and imbalance – the formation of the euro crisis” was introduced in detail the policy focused on spending cuts (austerity), and to realize the economic growth, a low salary strategy, increase the export. Recently received from AMECO about government debt levels, according to data from the start this policy since 2010, most of Europe’s debt burden is not apparent reversal, especially in the debt burden of the country. Predicting the next few years is not good either. The level of public debt in the eurozone is still at a dangerous level and is expected to remain high in the long term under current policy.
As a result, many like Paul krugman, Joseph stiglitz, gian carlo setiawan, Paul’s cranley clinic and others criticized such economists, there is no real debt restructuring policy tightening is really failed, because it increased unemployment, and weakened the local demand, therefore, the government budget. The result has been a weakening of economic growth that has left eurozone countries with high debt levels unsustainable.
So if the current strategy is lacking, what is the alternative to a debt restructuring, with lower interest rates and longer maturities?
The first option is to let some euro-zone countries default, even though the European commission and the European central bank have pointed out that European countries will not actually default. Like Greek economist, lawmakers Costas lapa d was found (Costas Lapavitsas) and German economist Herbert hainer method, baker (Heiner Fassbeck) such experts wrote “against the troika: the crisis in the euro zone and squeeze”, points out that the southern European countries to default on its debt via a single currency. In their book, the author thinks that it will be painful, countries like Greece, however, in the absence of the euro will be better, because it will make them more fiscal and monetary policy tools to restructure its debt, so as to stimulate the economy. Yet most businesses, politicians and heavily indebted countries do not want this radical approach.
There are other options for countries to restructure their debt without austerity. According to the economic policy research centre (CEPR) and its 2015 publication “the new start of the eurozone: dealing with debt”, these alternatives can only function if they are integrated into three steps. First, the eurozone absolutely needs a one-off debt restructuring or debt-relief policy. However, policies need to have a clear policy framework to avoid a new surge in public debt in the future, including the reduction of financial speculators’ control of the work of monetary union.
First, the economists Charles Wyplosz and Pierre P? Rris proposes a solution they call the eurozone’s political acceptance of a debt restructuring (PADRE). In short, their strategy means that the ECB will buy a lot of debt from every country in the euro area. The amount depends on the size of the economy. The ECB will pay for it by borrowing from financial markets. Note that the ECB can pay most of the cost of the loan by printing money called “seigniorage”. If the PADRE were implemented in the eurozone, each member would benefit from a debt restructuring. Wyplosz and Paris calculate Latvia, Greece and Portugal are among the biggest beneficiaries.
Although the CEPR supports the PADRE strategy, recent revenue calculations from the PADRE strategy have shown that debt reduction in debt countries to less than 95% of GDP is not enough. A total reliance on seigniorage would not be desirable because “the ECB can no longer rely on committed seigniorage to support its intervention […] The European central bank can’t use it to balance the possible loss, on the balance sheet, in turn, means that if the European central bank was forced to monetize some of these losses, the euro zone may encounter difficulties in principle. The ECPR alternative is to combine the PADRE concept with the establishment of a stabilisation fund for the most indebted countries. From a specific target revenue growth of income, such as value-added tax or capital tax or wealth tax, plus in the country and the euro area stability fund bills, will ensure the long-term existing and future income stream, it will produce a big through stable fund to buy back the sum of the debt.
The second step in a one-off debt restructuring is to avoid another debt escalation. European institutions must prevent moral hazard by excluding future similar debt restructurings. The eurozone has set a set of rules for fiscal discipline, as more resilient Banks are reducing the risk of new rescue costs. For example, the fiscal compact stipulates the maximum deficit, as well as the provision of debt relief, and the commission has a greater say in the monitoring and coordination of fiscal policy. CEPR pointed out, however, “only requires countries to take the path of debt relief predefined contracts, impossible than failed to prevent imbalance intensifies and leads to the rules of the current eurozone crisis more credible. In other words,
If international debt spirals out of control, the alternative could be a temporary transfer of fiscal power to crisis management agencies. While it works in states and cities in the United States and Germany, it is politically impossible and undesirable in the euro zone at the federal and national levels. So in a period of low growth, if there is no prospect of austerity, what else can be done to improve fiscal discipline? Especially pointed out in the notice, in a monetary union, if a country facing financial problems, so in debt levels have more strict rules together, because the other members of the pollution risk is higher.
Currently 3% of the budget rules better mechanism, namely establish necessary changes during the recession and investment of political freedom is too small, is a more flexible approach, can relax annual budget deficits in the economy slowing the 3% threshold and combine it with strict overall debt levels. The need to calculate the risk of a debt crisis requires a warning system that requires long-term attention. This is also the international monetary fund’s proposal for a more flexible proposal to amend the special access framework in 2014, eliminating systemic exemptions. The change is fair, especially after major debt restructuring, where countries are now in a relatively secure position.
These changes will not affect the eurozone’s continuing imbalances as the debt restructuring and debt-restructuring policy framework is in place. If the euro zone to keep balance, means living high trade surplus countries and trade deficit countries with high, this will lead to appear again from surplus to deficit countries, unprecedented monetary circulation. This imbalance increases the threat of speculation and threatens to disrupt the financial markets of member states. Therefore, the eurozone needs a fiscal transfer mechanism to deal with the imbalances posed by various economies in the single currency. At present, there are four alternative approaches to the debate, each of which is supported by several institutions.
The European commission, in particular French President francois hollande and his counterparts in Italy and Spain, all backed European bonds. They think that European bonds is not only towards closer union wise, but also Greece, Portugal, Ireland, Spain and Italy and other rich countries means of quickly back door. This means that a country can issue euro loans or bonds, all of which support loans. The unfairness of the eurozone is that rates in a single currency (Spain, Italy and Portugal) are higher than those of other countries. (Germany, Netherlands). This means that Germany must pay more debt by issuing European bonds, while Spain or Greece will pay less.
Not surprisingly, the German government and its central bank, along with its peers in Finland, Austria and the Netherlands, oppose the idea of eurobonds. They don’t want to pay higher interest rates, they worry about moral hazard, they don’t want to change the European Union’s treaty banning joint debt.
However, not everyone in Germany is opposed to the idea of sharing debt in a common currency. German chancellor Angela merkel and the opposition social Democrats’ economic advisory board are trying to find a compromise. Their advice is to redeem the fund, which creates a common responsibility for national debt, but is linked to privatisation, free markets and austerity. The fund allows indebted countries to offset some of the interest costs, while Germany will pay rates lower. Debt redemption fund is not with the passage of time will be all debt into eurobonds, but limited to 25 years, with member countries pledged to debt limit in its constitution, and promised economic and fiscal reforms, such as flexible Labour market and cut spending. The idea was to find resistance to further tightening of economic policy, mainly in southern Europe. Germany’s conservatives are also opposed to providing any financial aid to indebted members.
Another option for eurobonds is the Eurobills, which all 17 European members support for short-term one-year debt. As the economist Christian Hellwig and Thomas Philoppon first noted, the eu authorities will have more oversight of whether issuers comply with a budget plan for the use of Eurobills. So it would reduce moral hazard, an argument against using eurobonds. The European commission has published a panel of experts to study the idea of debt servicing and European debt. The panel in its final report concluded that that debt repayment fund and European bonds could help stabilize the government bond market, support the monetary policy transmission, promoting financial stability and integration. But with the reform of the eu economic governance experience is very limited, the panel’s report also says: “before the decision of joint distribution plan, first of all to gather evidence about governance efficiency may be considered to be prudent. With strong opposition to European bonds and other short-term debt sharing mechanisms, debt-ridden countries now face the high cost of repaying public debt.