Can the Eurozone Be Saved without Treaty Changes or New Institutions?

Michael Stephens | May 22, 2012

Yanis Varoufakis and Stuart Holland have updated their “Modest Proposal” for overcoming the eurozone crisis (they call it version 3.0).  They took on the challenge of coming up with proposals for addressing the eurozone’s tripartite crisis (sovereign debt, banking, and underinvestment) in a way that avoids any treaty changes or the creation of new EU institutions.  So although turning the eurozone into a “United States of Europe,” with an empowered federal (which is to say EU)-level fiscal authority and a central bank willing and ready to act as a buyer of last resort for government debt might be an ideal solution, there are serious institutional and political obstacles that stand in the way.

These are the three constraints Varoufakis and Holland accepted as fixed elements of the EU’s policymaking landscape:

(a) The ECB will not be allowed to monetise sovereigns directly (i.e. no ECB
guarantees of debt issues by member-states, no ECB purchases of
government bonds in the primary market, no ECB leveraging of the EFSF-ESM
in order to buy sovereign debt either from the primary or the secondary
markets)
(b) Surplus countries will not consent to the issue of jointly and severally
guaranteed Eurobonds, and deficit countries will not consent to the loss of
sovereignty that will be demanded on them without a properly functioning
Federal Europe
(c) Crisis resolution cannot wait for federation (e.g. the creation of a proper
European Treasury, with the powers to tax, spend and borrow) or Treaty
Changes cannot, and will not, precede the Crisis’ resolution.

(The updated version alters the third prong of their proposal, which involves using the European Investment Bank and European Investment Fund to address the growth and underinvestment crisis.)

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