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Home Economics

Why Europe needs another currency – the “new euro”?

by Daniel Brown
2014/07/08
in Economics, HOME
Reading Time: 2 mins read
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Why Europe needs another currency - the "new euro"?
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While Eurozone prudently spends stabilizing reforms, Germany is forced to take on more concessions than it would like. Disgruntled members might would benefit from the creation of new monetary union, built better than the first, which would have made ​​it possible to adjust the exchange rate for Germany and helped to avoid competitive devaluations.

The highlight of this unhealthy situation in the Eurozone today is that the system has no significant disadvantage in Germany, things which are going well after the Great Recession of 2008-2010. And while the Eurozone is actively moving forward, making the necessary reforms in order to avoid the collapse of the system, it becomes apparent that Germany is under constant pressure and forced to go to all the big concessions.

In such circumstances, it may be time for a radically new judgment. Dissatisfied members can benefit introduction of the new euro. Such proposals have already been made (Dobbs and Spence 2012), but prolonged poor macroeconomic environment makes all rethink.

Three advantages of the new Euro:

• New Euro will be “built” better than the last in terms of disgruntled members. No need to repeat past mistakes.

• The second argument consists of two parts

First, the creation of a separate currency union members unhappy, give them the opportunity to adjust the exchange rate relative to Germany.

Second, forming a new monetary union, and not going to separate currencies, they will be able to avoid competitive devaluations that threatened early EU in 1986 (Single European Act) after the collapse of the Bretton Woods scheme and to the Maastricht Treaty.

• Third, there are serious grounds to believe that from the systemic reforms that are held today, disgruntled members of the euro area will be less good than from the formation of the new monetary union.

Concessions that have to go to Germany to cause serious opposition inside the country, not to mention the legal objections to this.

• New euro could become an instrument of pressure on pregovorah with Germany.

However, I would like to finish the presentation of this version only its benefits, it is advised to focus on the first three arguments.

Moment, which is still not taken into account, is a cost that would entail such a transition, in particular the interpretation of existing debt in euros. It is important to note that the “status quo” in the euro area can falter at any moment, and already the only reason to choose the best alternative.

Moreover, if the only convincing argument against the new Euro is old wisdom – “better to stay in a bad marriage than to spend money on divorce”, the realization of this alternative will only benefit everyone.

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