The Institute of New Economic Thinking has formed a Council on the Euro Zone:
Press Release: 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. (list of members). 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.
See the report for more detail on the recommendations. The ICEC will meet next in the early fall to examine scenarios that include disintegration of the Euro zone and its ramifications, a realignment of the Euro zone into two blocs, and the role of the United Kingdom in the future of Europe.