Tags: mosler | debt | crisis | greece

Warren Mosler: The Steps Needed to Fix Europe's Debt Crisis

Friday, 19 Aug 2011 01:53 AM

By Fred Fleitz

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Structural problems in the European Union have played a significant role in the current European debt crisis says Warren Mosler, principal and co-founder of AVM, an international bond firm with 30 years of experience in Europe and author of the 2010 book, “The 7 Deadly Innocent Frauds of Economic Policy.”

Mosler said in an exclusive interview with Fred Fleitz, managing editor of the Langley Intelligence Group, Newsmax Media's new global forecasting and intelligence website, that it is crucial for European states to upgrade their capacity to issue debt. He has been working with the Greek government and financial institutions on a way to do this with a plan under which Greece would allow those who hold Greek bonds to use them to pay Greek taxes in the event of a Greek default.

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Mosler said his “Mosler bond” plan has been well received by the Greek government and banks and he has already approached the Irish, Italian and Spanish governments to help them pursue a similar plan to address their debt problems. While nations who issue these bonds will still need to service them, Mosler believes Mosler bonds could double the capability of eurozone states to issue debt at reasonable interest rates.

Mosler explained that the debt problems currently plaguing Europe stem from an economic system in which nations that adopted the euro are like U.S. states – they use a common currency and cannot print their own money. The difference, however, is that U.S. states rely on the Federal government for many hugely expensive things that Europeans states must pay for themselves like unemployment compensation, road projects, and other transfer payments. Unlike U.S. states, eurozone countries do not have a European treasury prepared to go into debt itself to fund such programs and projects.

Greece does not want to leave the eurozone nor is there much interest by other European states of this happening because it is not obvious to Europeans that the euro is the reason for its economic troubles, according to Mosler. Since the euro has given Europe a stable currency with low interest rates, Europe has tried to address the debt crisis by focusing on tax evasion, overspending, and corruption. While Mosler doesn’t see Greece leaving the eurozone, if this did happen, he believes it would be disruptive but would not destroy the euro.

Mosler also added that a proposal made this week by German Chancellor Merkel and French Prime Minister Sarkozy to enact a tax on European financial transactions was a serious mistake, since a large tax increase like this would serve to take the euro out of the economy, hurt demand for goods and services, worsen the economic situation, and cost jobs.

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