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solving the euro crisis

The euro is in crisis, with no viable solution in sight. A German industrialist has a radical idea. “If it was possible to form one currency out of 17″,  he reasons, “it should also be possible to form two out of one”.

Having been an early supporter of the euro, I now consider my engagement to be the biggest professional mistake I ever made. But I do have a solution to the escalating crisis. ….
[W]e need a plan …: Austria, Finland, Germany and the Netherlands to leave the eurozone and create a new currency leaving the euro where it is. If planned and executed carefully, it could do the trick: a lower valued euro would improve the competitiveness of the remaining countries and stimulate their growth. In contrast, exports out of the “northern” countries would be affected but they would have lower inflation. Some non-euro countries would probably join this monetary union. Depending on performance, a flexible membership between the two unions should be possible.

Implementing [this] plan … requires that four underlying problems are addressed separately. We must rescue banks, not countries. Stabilisation of banks on a national level should replace current European umbrellas. In many cases, this requires temporary bank nationalisation. Second, Germany and its partners in a new currency must forgo a significant portion of their guarantees to help refinance Greece, Portugal and others. As much of this money is already lost, this is an acceptable price for an “exit ticket”. Third, there must be a new European central bank based on the Bundesbank, preferably not led by a German. The new currency should not be called the “D-Mark”. Fourth, mechanics for entry would be similar to those for getting into the euro.

Hans-Olaf Henkel, “A sceptic’s solution – a breakaway currency“, Financial Times, 30 August 2011.

Hans-Olaf Henkel (born 1940) is former head of the Federation of German Industries (BDI).

Update: Nick Rowe launched an excellent discussion of this proposal over at at WCI.

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This entry was posted on Tuesday, August 30th, 2011 at 08:47 and is filed under Finance. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

2 Responses to “solving the euro crisis”

  1. solving the euro crisis « Thought du Jour | Cais de Abrigo says:
    September 4, 2011 at 21:15

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  2. Gordan Finch says:
    September 6, 2011 at 01:16

    I think its an extremely good idea the Euro is massively overvalued and in its present state serves no purpose.