Two speed Europe and need for new currency

[benwm]

Maybe the Euro area should start making plans for a two speed Euro zone? Keep the EURO for Germany and a few others such as Austria & France. Similar rules as now. Perhaps make EURO partially convertible to gold (10-20%).

But also create a new currency, call it "EPIIG" or something similar, for Greece and the other PIIGS. Idea would be to peg the EPIIG to the EURO, both currencies used side by side within the Eurozone but allow greater flexibility, occasional devaluations by the EPIIG.

What would be the rules to make the new two tier system work?

Some ideas:-
1. Facilitate "controlled" devaluations, determined every quarter say, typically 2-3% per year to account for higher inflation in PIIGS.
2. Create a sub-branch of the ECB to determine extent of money printing in EPIIG. ECB would set limits here.
3. Periodic promotion/demotion - forced to adopt EPIIG when nations don't meet fiscal targets over period of time, optionally can re-adopt EURO after period of good performance.

Would this work?

 

[Locutus]

Quote from benwm:

Maybe the Euro area should start making plans

The rest of it really wasn't necessary. Anything that remotely looks and feels like a plan is better than what there is at this point.

 

[morganist]

Quote from benwm:

Maybe the Euro area should start making plans for a two speed Euro zone? Keep the EURO for Germany and a few others such as Austria & France. Similar rules as now. Perhaps make EURO partially convertible to gold (10-20%).

But also create a new currency, call it "EPIIG" or something similar, for Greece and the other PIIGS. Idea would be to peg the EPIIG to the EURO, both currencies used side by side within the Eurozone but allow greater flexibility, occasional devaluations by the EPIIG.

What would be the rules to make the new two tier system work?

Some ideas:-
1. Facilitate "controlled" devaluations, determined every quarter say, typically 2-3% per year to account for higher inflation in PIIGS.
2. Create a sub-branch of the ECB to determine extent of money printing in EPIIG. ECB would set limits here.
3. Periodic promotion/demotion - forced to adopt EPIIG when nations don't meet fiscal targets over period of time, optionally can re-adopt EURO after period of good performance.

Would this work?

I have been thinking the same thing. But I was thinking more along the lines of the east west split. Like when the Roman empire split into two. The new currency would enable greater exports for the failing countries that might help.

 

[benwm]

Quote from Locutus:

The rest of it really wasn't necessary. Anything that remotely looks and feels like a plan is better than what there is at this point.

LOL

 

[morganist]

Quote from Locutus:

The rest of it really wasn't necessary. Anything that remotely looks and feels like a plan is better than what there is at this point.

I makes you wonder why normal people on an internet forum are coming up with plans when people who get paid lots of money to do that job full time are not doing anything. What is going on.

 

[benwm]

Quote from morganist:

I makes you wonder why normal people on an internet forum are coming up with plans when people who get paid lots of money to do that job full time are not doing anything. What is going on.

Well, I guess us traders are more accountable, because if we don't follow what is going on we lose our dough. Our livelihood depends on making good decision, understanding the details, etc.

European unelected officials are...well...accountable to themselves...

 

[morganist]

Quote from benwm:

Well, I guess us traders are more accountable, because if we don't follow what is going on we lose our dough.

European unelected officials are...well...accountable to themselves...

I think what I am saying is as follows.

If these people are paid to do this as there job full time and they are paid well and there are a lot of them doing it. How come three people on an internet forum in their spare time with no resources who do other things have produced more in twenty minutes on a Wednesday afternoon than they have in the last three to four years?

 

[benwm]

Quote from morganist:

I think what I am saying is as follows.

If these people are paid to do this as there job full time and they are paid well and there are a lot of them doing it. How come three people on an internet forum in their spare time with no resources who do other things have produced more in twenty minutes on a Wednesday afternoon than they have in the last three to four years?

I hear you.
A rhetorical question, I think!

I think I'll just leave the question open ended...

 

[m22au]

Quote from morganist:

I think what I am saying is as follows.

If these people are paid to do this as there job full time and they are paid well and there are a lot of them doing it. How come three people on an internet forum in their spare time with no resources who do other things have produced more in twenty minutes on a Wednesday afternoon than they have in the last three to four years?

Because they're trying to avoid big losses for banks.

While I think that in theory Greece, Ireland, Portugal (and maybe Spain and Italy) should not be in the EUR currency, in practice European "leaders" don't want these countries out because it would hurt banks in most European countries.

 

[morganist]

Quote from m22au:

Because they're trying to avoid big losses for banks.

While I think that in theory Greece, Ireland, Portugal (and maybe Spain and Italy) should not be in the EUR currency, in practice European "leaders" don't want these countries out because it would hurt banks in most European countries.

Yes but there is no plan to do ANYTHING.

If they had plan to make this viable then I would understand.

Incidentally bank write offs are inevitable.

Remember investments are based on what was produced because it is based on principal investment. As soon as you have a reduction in the money supply or output it becomes impossible to repay it.

There is no way they can maintain aggregate demand to repay the existing debt.