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Free Market Road Show Madrid, June 17 th , 2013

Free Market Road Show Madrid, June 17 th , 2013. “Is more Europe better Europe?” P. Schwartz “ Single currency versus common currency ”. “ Is there an alternative to the Troika?”. The € as politics. The crisis of the euro has thrown doubt on Jean Monnet method to foster European Unity

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Free Market Road Show Madrid, June 17 th , 2013

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  1. Free Market Road Show Madrid, June 17th, 2013 “Is more Europe better Europe?”P. Schwartz “Single currencyversuscommoncurrency” “Is there an alternative to the Troika?”

  2. The € as politics • The crisis of the euro has thrown doubt on Jean Monnet method to foster European Unity • The path of spontaneous economic cooperation abandoned • Economics and the € as a political instrument to foster European unity • The € is instead it is increasing tensions among euro-members and heightening the feeling of a democratic deficit

  3. Mundell conditions for a legal tender money • The Stability and Growth Pact (1997) • Applies Maastricht conditions to existing members • Deficit < 3% GDP • Sovereign debt < 60% GDP • Later modified to suit France and Germany (2005) • ECB rules • Cannot lend to EC institution or member-states • Must preserve the purchasing power of the currency ( self-imposed ΔP ≈ 2%) • Real GDP growth not in its remit • No bailing-out member-states

  4. How the € functioned in fact • No single market and no convergence • Foreign deficits not mentioned • Target II and the finance of current BoP deficits • No bailing out of member states disregarded • No ECB financing of States and national banks flouted • ECB engaged in countercyclical monetary policy

  5. The hard ECU, a parallel currency • John Major’s ‘hard ecu’ in 1990: a common European currency instead of the single one defended by Jacques Delors. • An electronic money to be used by business and tourists • Initially, value equal to a basket of European currencies • Could not subsequently have been devalued relative to any member currency. • This would have made it as hard as the hardest member currency.

  6. Two Currencies in Cyprus • Cyprus residents obliged to use two currencies: the German € and the local € • The fixed exchange rate between the two is defended by capital controls and limits on bank account disposal • With a flexible exchange rate between the free € and the stamped € no need for controls • All payments between residents in stamped €

  7. The ECB & national central banks with parallel currencies • The ECB will be able to follow an orthodox monetary polity regardless of public deficits and private leveraging • National central banks will finance national States at their own risk • Danger of the local currency becoming small change • The € a choice currency shaming profligate national states • National States in crisis will be able to devalue • Devaluation a form of austerity

  8. Rafael del Pino Research Professor www.pedroschwartz.com

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