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Saving the Eurozone does not depend on Germany: Our letter to the Financial Times

28/06/2012

From Professors Stuart Holland and Yanis Varoufakis  

Europe is deadlocked in assuming that resolving the Eurozone crisis must be unanimous. Yet it does not need this. It could do so by ‘enhanced cooperation’ which needs support by nine or more member states while, on a motion for an enhanced cooperation policy, only those supporting it vote.  This could be adopted both to mutualise a share of the debt of most member states at lower interest rates and to issue bonds to fund recovery.

Is there a precedent? Yes. The introduction of the Euro itself was a de facto case of enhanced cooperation. Most member states joined it, some did not. On an enhanced cooperation basis, Germany and other member states such as Austria, the Netherlands and Finland could keep their own bonds just as the UK kept sterling rather than joined the euro.

Nor need Germany bankroll the rest of Europe to gain bonds for recovery. These could be funded by a share of global surpluses rather than transfers between member states. The BRICS have been calling for EU bonds from the onset of the financial crisis and would invest in them. They want the Eurozone both to survive and to grow to sustain their exports, as does the US. 

Financial sector insiders confirm that they woud subscribe European bonds at less than 2 per cent.  The central banks of the emerging economies and sovereign wealth funds could do so for less. The ECB could hold them, although not service them without fiscal transfers.

But the European Investment Fund, which one of us proposed to Jacques Delors to issue Union Bonds, and now is part of the European Investment Bank Group, has confirmed to the Economic and Social Committee of the EU that it could issue recovery bonds without a Treaty revision. These would co-fund projects by the EIB and be serviced from the joint revenues from them without needing a common fiscal policy.

Besides, while many member states are deep in debt after salvaging banks, the EU itself has next to none. It had none at all until May 2010 when the ECB began to buy up some member states’ debt and some non-performing bank debt. The US should be as lucky as Europe is now. The EU, deeper in self-doubt than in debt, has a late starter advantage. 

The institutions and procedures are already in place. They do not need Treaty revisions. Projects which have gained planning approval yet have been stalled by lack of national co-finance during the Eurozone crisis are, in Barack Obama’s words, ‘spade ready’ to go.  Europe could cut the Gordian knot on debt on the basis of enhanced cooperation, preserve the euro and ensure a New Deal style economic recovery. 

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