Now that Spain has also applied for the euro rescue fund and Italy might be next, the concern of many European people (especially in the ‘Triple-A’ euro countries) is where and when the chosen path of ongoing financial ‘support’ for and 'bailouts' of the weaker euro countries will end? The multi-billion euro question of course is: What is the best way out of the Euro crisis? We need a helicopter perspective to be able to properly analyze the problems of the Euro crisis and to judge the available proposals to tackle it. The new ‘Euro Solution Matrix’ is a simple and highly effective tool to do so.
Especially in the ‘Triple-A’-countries Germany, the Netherlands and Finland there is an on-going and never ending debate between economists about what is the most sensible way out of the Euro crisis. On one hand we see the euro skeptics who proclaim: let us terminate the impossible ‘one-size-fits-all‘ euro experiment (because with the widely diverging national economies, it will never work out) and let us therefore re-introduce national currencies and monetary policies. And on the other hand we see the euro optimists who proclaim: the euro is Europe’s only future, so let us take a next step forward to an economical and fiscal ‘United States of Europe’ including Eurobonds.
The shape-ability of Europe
Although I recognize the problems of the ‘one-size-fits-all’ philosophy of the current Euro Pact, ‘my gut-feeling’ tells me all the time we have to move on with Europe. So I belong to the euro optimists. Especially because, besides first a Dutchman, I consider myself a European as well and because I believe in the necessity and advantages of ‘Europe’.
The aforementioned debate is therefore in my opinion not only an economical debate, but much more than that. It is in fact a philosophical discussion about the question: Is our present Europe shape-able or engineer-able?
The Euro Solution Matrix
In my recent publications and lectures concerning the Euro crisis, I state that we, (mainstream) economists, unfortunately have a limited scope in our thinking and reasoning.
What we miss and urgently need in order to tackle the very complicated Euro crisis, is a multi-criteria debate with different disciplines and perspectives in which more creative elements should be sought, found and discussed as well. There is much too little attention paid to non-economical elements such as elements of ethics, engineering, law and democracy in the present path of the European policymakers to tackle the Euro crisis. And the stubborn and ongoing ‘bailouts’, ‘reforms’ and ‘austerity’ for countries and banks do not bring economic recovery at the necessary short notice, but only pan-Euro zone recession and even severe poverty in the Mediterranean Euro countries.
An engineer recently said: "I don’t understand economics and monetary policies, but to find the proper approach to tackle the Euro crisis you first need a framework with the relevant criteria which any solution should fulfill. Only then you can create a helicopter perspective. That is the proper way to make this complicated matter clear, to yourself, other experts, European politicians and the European peoples. And then you can easily judge and rank each and every proposed solution.”
In the end, it was easy to do. No more ‘gut-feelings’ nor ‘guestimates’, but a ‘Ranking the Stars’ with The Euro Solution Matrix (1.0).
The fun of this matrix is that you are forced - whether you like it or not - to objectively reflect and discuss the effectiveness, feasibility and pros and cons of various solutions. I did this exercise ‘en petit expert comité‘. This exercise was very enlightening.
More European integration, including Eurobonds (always my ‘gut feeling’ to be the best solution for the Euro crisis) is of course a beautiful ideal. But the score was not too good on criteria such as ‘Connection to the people’, ‘Political stability’, ‘Euro zone economic growth’ and ‘Taxpayers’ money’. And the (uncontrolled) re-introduction of national currencies scores lousy on ‘European unity’, ‘Stability of the financial system’ and ‘Monetary stability’. Click here
for The Euro Solution Matrix.
‘Geuro’ Proposal (Thomas Mayer) and ‘The Matheo Solution’ (André ten Dam)
According to The Euro Solution Matrix, the best approaches to tackle the Euro crisis are based on the concept of ‘Parallel Currencies/Currency-Units’. Especially because this concept restores the international competitiveness of the weaker Euro countries instantly. Therefore this concept scores best on ‘Euro zone (real) economic growth’.
The CES-ifo Institute was the first to pay serious scientific attention to these concepts in ‘ifo Schnelldienst 23/2011 (Rubric ‘Zur Diskussion gestellt’)’, featuring Dirk Meyer and Michael Vogelsang (Parallel Currencies ) and Anton Beer and André ten Dam (Parallel Currency-Units). Click here
And in May 2012 this concept first hit the media with the ‘Geuro’ proposal presented by Thomas Mayer (Chief economist Deutsche Bank), featuring a ‘Parallel Currency’ for Greece and other weaker Euro countries plus an ESM-financed ‘Bank Union’ (adopted within a week by Draghi, Juncker and Van Rompuy), which brings us - according to the Matrix - the runner-up. Click here
The best solution (best on the scores for the chosen criteria) is 'The Matheo Solution (TMS)'
, already presented in 2010 by independent Euro-researcher André ten Dam.
The main concepts of TMS are similar to those of Thomas Mayer, but more logical and comprehensive. For instance TMS features not the concept of ‘National managed Parallel Currencies’ but the much more innovative concept of ‘ECB managed Parallel Currency-Units’. And TMS also features a ‘Bank Union’ to recapitalize banks in the last (European) rescue phase, but more logically ECB-financed instead of ESM-financed. For these reasons TMS scores better in the Euro Solution Matrix on criteria such as ‘Feasibility’, ‘Taxpayers’ money’, ‘European unity’ and ‘Monetary stability’. What is also important is that TMS cancels out the need for the ESM. The Euro remains, thus TMS is, most importantly, a European solution.
Harry Geels is economist and Chief Economic Researcher at INMAXXA Asset Management (Naarden, the Netherlands) and Chief Editor of Traders Club Magazine (TCM). He frequently publishes his opinions in leading financial media in the Netherlands, including the Dutch Financiële Telegraaf.