Two decades after being introduced in 1999, the European currency used by 19 countries, may be approaching another crisis. In the radio show Boekestijn en De Wijk of BNR Nieuwsradio, Bas Jacobs, Sijbren Cnossen Professor of Public Economics at Erasmus School of Economics, discusses whether the euro is strong enough to survive such a looming crisis.
The contentious negotiations over rescuing the euro zone’s weaker members — Greece, Spain, Portugal and Italy — have left a bitter aftertaste. Debtor countries feel they were treated badly by the wealthier creditor countries. The backlash in Italy is another predictable (and predicted) episode in the long saga of a poorly designed currency arrangement, in which the dominant power, Germany, impedes the necessary reforms and insists on policies that exacerbate the inherent problems, using rhetoric seemingly intended to inflame passions.
Nevertheless, according to Professor Jacobs, we must be capable of managing the eurozone. Even though we are not a United States of America, we must be able to make this work. However, there are three requirements that must be met in order to make this happen. Firstly, if a financial crisis occurs, we must have the means to solve such a crisis, such as a budgetary back up, but also a European deposit guarantee scheme. Secondly, we need a lender of last resort. During the last eurocrisis, Mario Draghi - President of the European Central Bank (ECB) - has proven that the ECB can fulfill this role. Finally, we need an instrument to discipline countries whose government debt and budgetary deficit are not in line with the criteria of the Maastricht Treaty. Only if these three requirements will be met, the eurozone will be able to survive a new crisis.
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Listen to the entire podcast on BNR Nieuwsradio, d.d. 10 May 2019