3. Political constraints for any solution.

Any solution to the crisis must respect realistic constraints on political action.  This is why grand schemes should be shunned. It is why we need a modest proposal.

Four constraints facing Europe presently are:

(a) The ECB will not be allowed to monetise sovereigns directly. There will be 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 to buy sovereign debt from either the primary or secondary markets.

(b) The ECB’s OMT programme has been tolerated insofar as no bonds are actually purchased. OMT is a policy that does not match stability with growth and, sooner or later, will be found wanting.

(c) Surplus countries will not consent to ‘jointly and severally’ guaranteed Eurobonds to mutualise debt and deficit countries will resist the loss of sovereignty that would be demanded of them without a properly functioning federal transfer union which Germany, understandably, rejects.

(d) Europe cannot wait for federation. If crisis resolution is made to depend on federation, the Eurozone will fail first.  The treaty changes necessary to create a proper European Treasury, with the powers to tax, spend and borrow, cannot, and must not, be held to precede resolution of this crisis.

The next section presents four policies that recognise these constraints.

Read Section 4: THE MODEST PROPOSAL – Four Crises Four Policies

3 thoughts on “3. Political constraints for any solution.

  1. Pingback: Revisiting the Modest Proposal: Q&A with a Skeptic – Fall 2014 version (*) | naked capitalism

  2. I hope that European leaders and not only people like me without influence will read this absolute convincing proposal. Thank you – I shall try to let it know to my friends. With my best regards and thank you for your work – I daily try to read your website.

  3. Pingback: Een bescheiden voorstel om de eurocrisis op te lossen | Sargasso

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