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Prof R. Werner: “Euro was a mistake – All EZ members should exit Eurozone in solidarity with Greece”

The Monetary Union proved to be bad for Europe, for the idea of the European Project. Member states abandoned sovereignty as they cannot print money. They transferred financial and political independence to European Central Bank. It was a bad idea, anyway, as there wasonly monetary but not fiscal union. And now we have the price: Greece is forced to collapse, the next Eurozone “rebels” could join the queue.

“Introducing the Euro was a mistake,” says Richard Werner, a German, Professor of International Banking, the economist who proposed the term quantitative easing.

Prof. Werner suggests that “all Eurozone countries should exit the Eurozone to show solidarity with Greece. This [euro exit] can be done by simply reversing the procedures of introducing the euro.”

What should be done about Greece and what’s likely to happen

“The other half of the chief economists, like me, recognised that a single currency would be introduced, no matter how nonsensical the economics, since it was a political project. (The economics being bad, the politics was even worse: the end of democracy in Europe). They agreed with me that it was going to be a disaster. I asked the chief economist of what was then the fourth largest German bank: “If you think so, why don’t you speak up about this? You are forecasting gloom and doom, but I don’t see any reports by you or your bank about it.” His answer was shocking: He said that there had been clear instructions from the boards of all the large German banks to their staff that no report on the abolition of the D-Mark and the introduction of a European single currency that was in any way negative was allowed to be published. The economists in the private sector had been muzzled by their bosses. The same I heard from journalists. So the German media only quoted the rigged reports from the banking economists.

As I warned in my 2003 book Princes of the Yen, in the event the European Central Bank was to exacerbate matters greatly by creating massive credit bubbles, banking crises and recessions in its first decade of operation. The ECB then ensured a prolonged crisis by not ending these banking busts, such as in Ireland, quickly and without costs to the tax payer (as central banks are uniquely able to do). Instead, the ECB forced governments to incur massive national debts to rescue their now defunct banking systems. This way, Ireland moved from fiscal poster boy to virtual default, needing an IMF ‘rescue’.

And this, coupled with excessive consumption and spending during the boom years, is how Greece got into its current predicament.

So it is high time to recognise that the introduction of the euro was a mistake. It is time to cut our losses, instead of throwing good money after bad. Eurozone countries should therefore now show solidarity with Greece and all exit the eurozone together. This can be done by simply reversing the procedures of introducing the euro.

By abandoning the euro, each country would regain control over monetary policy and could thus solve their own particular predicament. Some, such as Greece, may default, but its central bank could limit the damage by purchasing the dud bonds from banks at face value and keeping them on its balance sheet without marking to market (central banks have this option, as the Fed showed again in October 2008). Banks would then have stronger balance sheets than ever, they could create credit again, and in exchange for this costless bailout central banks could insist that bank credit – which creates new money – is only allowed for transactions that contribute to GDP in a sustainable way. Growth without crises and large-scale unemployment could then be arranged.”

(full article in Werner’s blog here) – Excerpt published on KTG with author’s permission.

Richard Werner is professor at the University of Southampton. He proposed the term quantitative easing, as well as the expression “QE2” referring to the need to implement true quantitative easing as an expansion in credit creation.

PS The idea is not bad. In fact, it is radical and very welcome. However, watching the Euro finance ministers’ statements before the Eurogroup meeting, I hardly believe that any EZ member state government would dare follow such a solidarity action with Greece or with any other EZ member state. Unless some Euro-hardliners go for a long, long vacation.

Yet, it is interesting to see that not only UK’s economists slowly realize the need for change. Maybe politicians will follow – and one day reform this arteriosclerotic institution called European Union.

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  1. Euro was most probably a mistake. A political project. But to get out of it would be very complicated. Even only for Greece – and even Mr Tsipras recognized it at last. What terrifies , is the low GDP growth and internal devaluation.
    But there is also one good news, although not for Europe : people learn from mistakes ! I heard some time ago that ASEAN countries thought about introducing common currency – and they were persuaded rather not to it – I see now the article “Malaysian trade minister rules out single currency for Asean” from 20 April 2015.
    So at least this experiment maybe helped some other people :).

  2. Simple truth:
    Legally, Germany is not a sovereign state
    Professor Richard Weber (quoted article)

    German can regain sovereignty, if she seeks support on the other members of the European Union, instead of hostility. In this sense, Merkel is acting against the interests of Germans.

  3. If only the euro could be dismantled, and other EU countries show some solidarity with Greece. Far from it! They are determined to scapegoat Greece, blame their own stupidity and incompetence on one country, and ultimately destroy the EU (Greece first). Much of this comes down to the very low quality of political personnel — nationalistic and crude in their understanding of complex economic and political phenomena. Ignorant dressed up in pearls, essentially. (This is especially fitting for Lagarde)

    • But you do not see that … not Greece, some Greeks in the government made all to make European leaders angry ?
      I do not want to blame, I just say : who sows the wind will reap the storm. And I am sorry for this opinion, but I feel like wanting to try to answer how non-Greeks and non-leftists can see it.
      A small list:
      1. asking Germany for reparations ; right or wrong – but in bad time ;
      2. suggesting increases of pensions , which enraged postcommunist countries, where pensions are two times less ; Baltic States, Slovakia, Slovenia ; – now there comes a decrease, not increase ; again, right, but in bad time ;
      3. suggesting that Italy is in the same situation as Greece – Italians were not enchanted;
      4. attacking Rajoy, prime minister of Spain, and strong connections with his political opponenents ;
      5. eternal lectures of some important minister in Greek government…
      And last but not least suggesting that all Eurozone will disrupt when there is Grexit. Also postponing the negotiations to the last possible moment.

      • Giaourti Giaourtaki

        Why is Germany not paying it’s debts without “asking” for war reparations?
        Wrong time bullshit: That’s a parliamentary inquiry the old government introduced in 2012 and announced in Dec 2014 a report to come in 2015, so called democracy can’t ask for German timing it was held back long enough.
        Your satellite states all have public assistance and unemployed allowance and the costs for living are not comparable to Greece
        Lectures didn’t exist, the others just didn’t say anything and waited for King Schäuble, 25 Greek proposals ignored and lied about as “no proposals”
        Just read “we underestimated their power” from inside the Kafkaesque negotiations, its translated into several languages

    • But there is also one more mistake : probably no preparations to Grexit were done (just for any case). Well prepared Grexit would mean devaluation, but not bank bankruptcy and not necessarily such strong capital controls. Now Greeks are helpless and creditors are angry.

  4. I agree with Peter opinions.
    And Pedro is Peter in Portuguese (But we are not the same person).
    Anyway..,the article was very interesting.
    And maybe euro was a mistake.
    At least over borrowing was a mistake.
    But now we were in the same boat.
    What I criticize more in Tsipras and Cº was the way he attacked Germany and Schlaube.
    If the project is wrong , lets discuss ways to overcome the problem .
    If problem could not be overcomed lets find a way to divorce, undo the single currency withou not much damage to people.
    But lets talk as human beings.
    Tsipras did the opposite.
    He declared the end of German Occupation.., his first act in power is to honor victims of nazi Germany.., then he asked for reparations…;

    He framed the problem as a Greece VS Germany match.
    Greece lost.
    ( Tsipras might be able to ride the wave..but Greeks are loosing right now ).

    Instead of explaining to the Greek people the issues , ( Greece spend too much..,did borrow too much…, now economy does not work. we must find a solution with our partners) , no.
    Tsipras attacked Germany, Schlaube , made lots of people mad .

    Now we are framed. ( Thats how I feel at least ).

  5. To leave the Euro “out of solidarity with Greece” is rather simple minded rhetoric. Of course the introduction of the Euro was without economic base in a number of countries and has been damaging these economies. These countries should leave the Euro, not out of solidarity with anybody but because it makes economic sense. And others should remain with the euro, because it makes sense for them. the Euro is not a medal of honor but a politically/economically useful measure for those countries who fit together.

    • Giaourti Giaourtaki

      In the plan for the money-union it was named “Euro-Guilders” until 1942 and it’s still the same battle of two different factions in the German economy, most of all Grexit-promoters hide their agenda and were already anti-Euro long before Greece joined; they want back their beloved Deutsch-Mark back. In 1942 before the plan to build their ECB – “Europabank” – in Vienna could materialize the other faction took over and boosted the war-economy to exploit the Balkans.

  6. Τί έγινε με το σχόλιο μου;;