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2012-01-29

Temporary dual currency will save euro zone


Comments on Bill Evens “WEEKEND ECONOMIST: Full-scale fiscal union”, 29/01/2012, http://www.businessspectator.com.au/bs.nsf/Article/European-currency-fiscal-union-Germany-pd20120127-QW9YA?OpenDocument&src=rot
Quantitative easing means effectively fiscal transfer between good managed countries and poorly managed ones, so unless the former are comfortable with that kind of sacrifice, it is difficult to do in the euro zone where member countries are sovereign and independent.
It may be fair to make this kind of fiscal transfer explicit and let the recipient countries to shoulder some of the costs. It could be in terms of long terms loans from those better managed countries' governments.
Fiscal union is not absolutely necessary, if the euro zone allows a second currency when necessary such as the current situation with a fixed exchange rate with the current euro, so those countries badly in need of a competitive devaluation can adopt that second currency temporarily to boost their international competitiveness.
A dual currency monetary union when necessary is a solution to the currency economic and fiscal difficulties in the euro zone.
This alternative will be better than fiscal union where some nations will oppose it if there are better alternatives that are available.
This dual currency zone will not only retain all the advantages that the current euro have, but also have the necessary flexibility for some countries to adjust through an effective devaluation without the need to have politically and socially difficult nominal wage cuts.
New problems call for new thinking and innovation.
This kind of innovative thinking will save the euro without fiscal union.

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