A Monetary Union for the Future

02/07/2011

Pedro Schwartz: “The economic targets of the euro are a sound currency with a global scope, lowering transactions costs and promoting the convergence of Member States”

“The rules to access the euro were: price stability with a harmonised inflation rate, soundness and sustainability of public finances with public deficit not exceeding 3% of GDP and public debt not exceeding 60% of GDP and, lastly, the lasting nature of the convergence with specific long term interest rates”

“The advantages of having a single currency in a broad trading area are that it increases transparency when fixing prices, eases transactions as well as the composition of asset portfolios of companies and individuals and if this currency should expand around the world, incomes would increase”

“According to Mundell, the conditions for an optimum currency area are labour mobility, a customs union with full capital mobility, price and wage flexibility, and an automatic fiscal transfer mechanism. The weakness of the euro is that it only meets the customs union”

“The Greek crisis is the result of the euro design. Years must pass yet for Greece to tap the markets: expenditure cuts ere still insufficient, they’re just beginning to privatise, tax collection is still weak, public employment has not been reduced yet and, furthermore, they can’t manage the interest rates demanded to them”

“The Greek crisis is affecting Spain because the necessary reforms have not been done yet”