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2013-05-02

Euro zone may benefit from reforming the system

Comments on Oliver Marc Hartwich "Is Germany edging towards the exit", 2/05/2013, http://www.businessspectator.com.au/article/2013/5/2/economy/germany-edging-towards-exit

While the euro zone has experienced significant difficulties in the wake of the GFC, there are some measures that could be taken to overcome or at least lessen the shortcomings of the current euro zone design.

For example, one measure is to create a fixed rate of dual euro currencies that can provide the flexibility for one or more euro members to effectively devalue within the dual euro currency zone. This is because the most significant shortcomings of current single currency is the lack of flexibility of members to devalue to adjust to a less competitive situation they may be caught in.

Another second more effective measure is to issue euro bonds but charge different countries different rates according to its economic situations and macro economic management outcomes, so there is some accountability to avoid the moral hazard from arisen. At the same time, the other members will have some return or security for their collective guarantee of the euro bonds.

The second measure would utilise the strengths of the euro group of countries to lower costs of government funding, but still have disciplines in place for any national governments.
Nevertheless, all remedy measures need the courage of reforming the current system design, as opposed to stubbornly and stupidly stick with a flawed system design.

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