This is a question many people in Germany are asking (39% of Germans are no longer in favour of the Euro. In Germany the issue is often framed in terms of how much the bailouts will cost. But, another very important issue is the extent to which the German export sector have benefited from an undervaluation in their exports. If Germany left the Euro, the D-Mark would considerably appreciate, reducing the competitiveness of German exports - and helping to reduce the large German current account surplus.
There are different approaches. Some frame the question as either debt pooling (fiscal union) or printing money to buy bonds and prevent rising bond yields) To save the Euro, there needs to be a combination of some or all of the following:
- Joint liability of European debt. Eurobonds where debt is pooled.
- Direct recapitalisation of European banks
- Printing Money to buy bonds and provide liquidity for governments facing liquidity crisis.
- Economic growth to give countries a chance to improve tax revenues and reduce debt / GDP ratios
- Restoring competitiveness amongst peripheral Eurozone countries who are struggling in the fixed exchange rate of the Euro.
- Structural reform / supply side policies which improves tax collection and improves productivity and competitiveness.
The big question for Central Banks is should they be printing money, and if so how much?
- An initiative for Italian footballers to show their patriotism and buy Italian bonds. Buying domestic bonds
The Recession and Trend Rate of Growth
Will the UK ever recover the lost output of this recession? Has the recession reduced the long-run trend rate? Is the economic downturn actually a supply side phenomenon?