By Sarah Johnston, Europe is sleepwalking into imminent disaster and unless there is a drastic change of course, it faces collapse with ‘incalculable economic loss and human suffering’. That is according to a report from 17 leading economists. Another day – another gloomy economic outlook for the Eurozone. The latest report from the Institute for New Economic Thinking says the current Eurozone system is completely broken. It follows growing concern that Spain is going to require a full international bailout and Germany, Europe’s powerhouse, might be downgraded by the ratings agency Moody’s losing its status. However, this report puts forward a plan that, it claims, could save the day. It says the Eurozone could be stabilized immediately by creating a lender of last resort to back up the bond markets. The Institute for New Economic Thinking proposes the crisis can be managed through a European Redemption Fund that takes over a so-called legacy debt. This would then be paid off over 20 years with each state putting up foreign reserves, gold and other collateral to back it up. The proposals of the opposite of Fiscal Union meaning the Eurozone would have need to split. Andrew Hilton is director of the Center for the Study for Financial Innovation and former economist at the World Bank. I asked him, if he agreed with the report’s recommendations:It says that in the long term what we really need is structural change. In the long term we’ve got to do a lot of things, which nobody would really disagree with: restore faith in the euro, stabilize the debt’s issue, address also some transfer problems. And we need a banking union, we need financial reform, we need fiscal controls, we need – as you say – a lender of last resort. We need debt restructuring. And we need something which they don’t define, but which they call a new risk-free asset which is not tied to any specific country. That’s actually quite controversial. But they don’t go into what they mean. All of that is long-term, high in the sky stuff that is beloved of all Euro enthusiasts in Continental Europe. In the short term to make it palatable, however, to people in Greece and Portugal and Spain who are actually suffering, they say that this got to be partial and temporary mutualization of what they call legacy debt. That’s got to be an admission by the Germans that it’s not just the Greeks’ vote, that the Germans actually have some responsibility for this. Source: Voice of Russia.
