Friday, October 12, 2012
A Third Weapon to Save the Euro
This article outlines the foundation of the third "big gun" attempt at saving the Euro. The basic idea is to create a separate budget for the euro zone countries, hoping "to combat sudden economic shocks and promote structural overhauls". Many specifics are still undetermined with the proposal, but the main difference is that financial aid would be given to struggling countries rather than loans. One main thing that they are trying to avoid by setting up aid for the struggling countries is making sure they don't reduce the incentives for reforms.Thoughts on this new proposal? Is it time for the strong euro zone countries to bail out the weak?
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Interesting... This would definitely be a step towards greater unification and intrinsic cooperation in Euro zone. I would question the readiness of the individual citizenships to accept this policy. Those of the wealthier nations would be reluctant to enter a plan where they could find an annual siphon of cash with little return on their investment. The 100 billion dollar question though, would be whether this new plan could help to lessen the cost of future bailouts by formalizing a checks-and-balances system to monitor member countries. This would help to ensure the health of those countries and prevent damage from economic downturns spiraling out of control through. However this intrusion and monitoring would probably not be welcome by member countries in times where there is no need for extended help. Although a probable solution, I dont think the EU is ready for this much integration.
ReplyDeleteI found this to be a very interesting idea, that the EU should certainly put more analysis into. I remember during the construction of the Euro, they did it to strengthen the overall region as a whole. By making more collective capital holdings, with the guidance of larger government bodies this plan could strengthen it even more so. Proportionally, countries like Spain and Greece have the most to gain from this plan, while Germany and France stand to gain the most from debtors. I would be interested to see this further discussed at the summit in the coming days, specifically the opinions of each country on the matter.
ReplyDeleteThis is another clear step towards making the Euro-zone the dominant government entity in Europe, by making the Euro-zone not only a monetary union, but also a fiscal union. In order to prevent poorer countries from becoming economic free-riders, constantly running budget deficits while providing more social services than they can pay for, the region will have to establish benchmarks for these services, which will reduce the sovereignty of individual countries.
ReplyDeleteIt is indeed an interesting idea but the concern he raises at the end of the article really needs a thought. With countries like Greece and Spain which are having serious financial struggle; will they be able to keep the aid just for a short period of time?
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