Harvard economist Robert Barro says the days of the euro should end.
"The euro was a noble experiment, but it has failed," Barro wrote in The Wall Street Journal. "Instead of wasting more money on expanding the system's scope and developing ever larger rescue funds, it would be better for the European Union and others to think about how best to revert to a system of individual currencies," he wrote.
“A natural possibility would be to start by throwing out the least qualified members, based on lack of fiscal discipline or other economic criteria,” said Barro, but a better plan is to start at the top.
“Germany could create a parallel currency—a new D-Mark, pegged at 1.0 to the euro,” Barro wrote. “The German government would guarantee that holders of German government bonds could convert euro securities to new-D-mark instruments on a one-to-one basis up to some designated date, perhaps two years in the future.”
“Private German contracts expressed in euros would switch to new-D-mark claims over the same period. The transition would likely feature a period in which the euro and new D-mark circulate as parallel currencies.”
Other countries could follow a path toward reintroduction of their own currencies over a two-year period. For example, Italy could have a new lira at 1.0 to the euro. “If all the euro-zone countries followed this course, the vanishing of the euro currency in 2014 would come to resemble the disappearance of the 11 separate European moneys in 2001,” Barro says.
A key issue for the transition is to avoid sharp reductions in values of government bonds for Italy and other weak members of the eurozone, Barro warns. “Governments and financial markets worry that these depreciations would lead to bank failures and financial crises in France, Germany and elsewhere,” he says.
The Calgary Herald reports that oil prices fell on concerns about the eurozone’s economy, but the decline was limited by fears about Iran’s threats to shut the Strait of Hormuz oil-shipping route and Tehran’s ongoing dispute with the West over the Iranian nuclear program.
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