Controlled dismantlement of the Eurozone : A proposal

Quiet a few people have written on undoing Eurozone and how to go about it. Likes of Barry Eichengreen warn against any such approach as it will lead to mother of all financial crisis.

This paper by National Bank of Poland econs — Stefan Kawalec and Ernest Pytlarczyk is an addition to the first camp. It was surprising to see a apper from NBP econs not just critcising the Euro project but also suggesting to dismantle it. Their suggestion is to allow the strong countries to move out of the currency block and the weaker economies to remain till the crisis eases:

In Kawalec and Pytlarczyk (2013), we argue that the single European currency constitutes a serious threat to the European Union and the Single European Market, and we propose a controlled dismantlement of the Eurozone. In this paper, we undertake a deeper analysis ofthe measures which would minimize the risks throughout the process of the Eurozone dismantlement and contribute to rebuilding confidence in the future of Europe.

The dismantlement should be the result of a consensual decision to replace the euro with an alternative system of currency coordination.  The dismantlement should start with the exit of the most competitive countries. In the meantime, the euro should remain the common currency of less competitive countries.

The European Central Bank (ECB) should be preserved as the central bank for all 17 Eurozone member countries, even after some of those countries have replaced the euro with new currencies. In this capacity, the ECB should be in charge of designing, preparing, and implementing the segmentation of the Eurozone as well as managing the new currency coordination system– European Monetary System 2.

 The forthcoming EU – USA free trade agreement would build new momentum for economic growth and contribute to restoring confidence in the future of Europe. As of today, neither the member states of the Eurozone nor European institutions such as the European Commission or the ECB have been able to come up with a game-changing proposal such as the Eurozone dismantlement. However, this may change as a result of adverse economic and political developments.One of the potential triggers could be the situation in France.

Nice bit..


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