Breaking the Deadlock – A Path Out of the Crisis
Europe is on the threshold of catastrophe. The euro zone’s fault lines are readily apparent and the interaction between markets, inadequate
institutions, and the unsustainable political conditions in many countries is driving the European economy toward depression and the euro zone toward disintegration.
It is with a sense of urgency and a desire to overcome these dangerous conditions that The Institute for New Economic Thinking (INET) sponsored the formation of the INET
Council on the Euro Zone Crisis (ICEC) that is comprised of 17 leading European economists. (See attached list of members below.) The group held its first meeting on
June 26-27 in Brussels and a nonstop virtual meeting has taken place since then. As the pressures toward disintegration of the euro increase and the deep social unrest in
Spain, Italy, and other countries erupts, the INET Council of the Euro zone members felt compelled to issue a brief report that creates a vision of how the euro zone could be
repaired and redesigned at this desperate juncture. The report recognizes that there has been little overlap between what is economically
and financially necessary to repair the flaws in the euro zone system and what is politically feasible in an environment that has degenerated into distrust among nations
within the system. It is in that context that the ICEC has recommended the following:
1. This dramatic situation is the result of a euro zone system that is thoroughly
broken. This systemic failure exacerbated a boom in capital flows and credit, and
complicated its aftermath after the boom turned to bust.
2. It is the responsibility of all European nations that were parties to the euro’s
flawed design, construction, and implementation to contribute to a solution.
3. Absent a collective effort the euro zone will disintegrate quickly. The stresses
have been building for a long time and conditions in several countries are not
socially or politically sustainable much longer.
4. In formulating recommendations, the ICEC report makes a clear distinction
between the legacy problems that were created by the dysfunctional design of
the euro zone over the past 10 years and the challenges of re-design that would
restore the soundness of the Euro zone system.
5. One cannot deal with the legacy overhangs as long there is no clear commitment
to long-term re-design.
6. At the same time it is impossible to build long-term mechanisms such as a
banking union as long as the legacy overhang of debt imbalances debt,
competitiveness, and capital inadequacy of financial institutions impede the path
toward a healthy Europe.
Full report click here.