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AN ECONOMICS CONFERENCE in Galway has been told that the current crisis in the Eurozone is based on “a series of structural design flaws” in the very design of the European monetary union, which would require reform if the monetary union will survive.
Tom McDonnell from the independent economic think-tank TASC said resolving the crisis would need a “package of complementary policy changes to reform the currency union’s deeply flawed institutional architecture”.
The European Central Bank’s current status, where it does not act as a ‘lender of last resort’ in a similar method to other central banks, was particularly criticised.
“A Lender of Last Resort would help ensure that temporary liquidity problems do not degenerate into a solvency crisis,” McDonnell said.
He said the current version of the treaty establishing the ESM, the new permanent bailout fund for the eurozone, would also not function as such a lender – and said it was “incapable of ending the crisis”.
“What I am proposing is a guaranteed yet conditional [lender of last resort] which can reconcile moral hazard concerns with the need to protect sovereign borrowers from the kind of solvency issues we have witnessed since the onset of the economic crisis,” he said.
McDonnell also called for a full banking union within the eurozone, saying a deposit insurance corporation should be established to fill this gap.
This would act as a central supervisor and regular of Europe’s banks, and would have the authority to simply close down any banks which could no longer meet their debts.
“Fundamental reforms are required to put the Eurozone project back on track,” he said. “Simply tinkering at the policy edges will not resolve what is a system crisis.”
McDonnell was speaking at the Dublin Economics Workshop, which also heard from the IMF’s resident representative in Ireland, Peter Breuer.
RTÉ News quoted Breuer as saying reforms such as a single banking and fiscal union – essentially a common European economic government – would help to renew confidence in the euro currency.
Though this would mean tighter control of public finances in individual member states, it would also mean countries would share the cost of fixing their banks – something which could prove appealing for Ireland if it was applied retroactively.
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Looks like the Brits were right all along :-(
Sometimes when you read Economists talking about intrinsic faults in the EU model leading to a cut off in funding & the ensuing Credit Crunch, you wonder if lessons have been learned. Surely our fundamental problem is that too much credit was available to our banks in the past, rather than too little now? Am I sounding German?
no your dead right a person could get a mortgage rent the house out show a profit and return to bank for another mortgage for another house and so on until they had a big property list but when it tightened up the rents fell below the repayments they obviously had no other income to meet the payments resulting in millions being owed and no way of paying it
Surely helping each other’s supposed to be why the European Union was formed in the first place. By making Ireland and Greece in particular responsible for bank debt, Europe is only prolonging the crisis, and bringing more and more countries within the union down, because of the continued uncertainty.
Federalising banking profits euro wide, while nationalising losses. Of course there’s an intrinsic fault in the EU system.
The magic roundabout… it wasn’t a bunch of builders, plumbers, retail workers that developed the ESM. It was Economists, accountants etc. Along comes another economist saying its flawed and won’t work.
The reality here is that none of them really know how to resolve the crisis. But sure why not make a name for your self anyway….
The whole thing was purposely designed this way so that we become so intertwined economically that the only way forward is to cede more power to Brussels as we are forced into economic and political union.
well said ian.barroso the maoist even called the EU a great empire.a lot of people cant get their heads around the fact that all this is being done on purpose & the solution that is offered is federal governance.its not a conspiracy theory its a conspiracy FACT.
If they sold some of the twigs or even branches of that bush they were looking into in Galway they might make some of their expenses.
A conference of ‘economists’ equals compound stupidity.
Investment Banking Cabal Debt scam from the outset .Its been planed since the 20′s just waiting for the technology i mean Libor now Algorithm manipulation .If there was Banking dynasty’s 200 yrs ago their still there today they just didnt go away just accumulated and waited for technology to control the whole worlds Financial system if you design the system then you can break it .The worlds economic faith lies in the hands of a few elderly Banking Magnates not so noble ones i would think.Lets not kid ourselves anymore .
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