A two-part plan published in the current issue of the International Journal of Pluralism and Economics Education offers a modest proposal for overcoming the Eurozone’s current crisis, redesigning its crumbling architecture, and reinvigorating the European Project.
During 2010, each and every response by the Eurozone to the galloping sovereign debt crisis has been consistently underwhelming, according to economists in Greece and Portugal. Monthly European Union Summit pronouncements, which during the first half of 2010 were met with initial goodwill by the markets and commentators, quickly proved the harbinger of further deepening of the crisis.
By the end of 2010, the markets did not even wait for EU leaders to conclude their monthly meetings before signalling another jump in yields and a further deterioration of the continent’s financial outlook. Currently, we have several nations on the verge of defaulting and stock markets in international turmoil.
“The European approach of extending expensive loans to fiscally stricken sovereigns on condition of savage austerity is deeply flawed,” says Yanis Varoufakis of the Faculty of Economic Sciences, University of Athens. Writing with Stuart Holland of the Faculty of Economics, at the University of Coimbra, in Portugal, a policy mix that is both modest and practical could end the crisis without any substantial institutional changes.
“Europe is labouring under a twin debt mountain and must extricate itself from it,” Varoufakis explains. “It must do so by tackling both manifestations of that debt at once. It must realise the opportunities presented to it by the fact that the EU itself has next to no debt. And it must seek ways to re-design its common currency.”
The team’s two-part proposal involves: debt stabilisation of both the public and the private sectors through a grand agreement and the second part offers a simple three-point plan for redesigning the Euro’s architecture by utilising existing institutions which can be recalibrated in order to facilitate net borrowing for productive purposes rather than for repaying existing mountains of debt.
Such proposals could be implemented summarily and would arrest the current economic freefall, the team asserts. “Our proposal has a simple aim: to stir up optimism that the two interventions necessary are feasible within the existing institutional arrangements,” concludes Varoufakis.