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An Exit Strategy is needed to Save the Euro

by on September 4, 2012

To enter the Eurozone many countries needed to reform their economies. Once entry was guaranteed reforms all but stopped. Instead ludicrous promises funded by cheap credit, kept politicians in power. Politicians in many European countries have been unwilling to reform their economies in good times and seem even less willing to do so in times of crisis. Some believe that more cheap credit is the answer. Yet the real answer is creating circumstances in which politicians will credibly reform.  A credible exit strategy will do this.

Photograph: Pascal Rossignol/Reuters

Certain criteria needed to met to join the Euro. The same criteria must be enforced to stay at the negotiation tables in the Eurozone. If a country does not meet the criteria it can keep the Euro as its currency, but can no longer call itself a Euro-member (Montenegro already uses the Euro without being part of the Eurozone). This leaves countries free to break budgetary rules, yet they must suffer the political consequences, loss of face and power. Only reforms will get them back in, the once so prestigious group. This is more credible than some European finance minister, who will bow to the pressure of his political cronies. I think that even French presidents facing the a loss of power, may be willing to reform their labour-market and public pensions.

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From → Economics

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