Finance Ministers are considering what further steps they need to take to tackle Europe’s debts and deficits, and wayward currency union. It is time to review the options that face them.
1. Germany leaves the Euro, recreating the DM. The other countries would devalue against Germany. easing some of the trading tensions and imbalances. The smaller Eurio zone would take stronger powers to control debt and deficits. They would still need to fix the banks.
2. Greece, Ireland, Portugal and Spain leave the Euro. They would devalue, and have to sort out their own deficit problems more quickly to reassure markets and allow them to borrow at lower rates. They might need more help or some help from the IMF. The individual states would have to act as gurantors of their leading banks where needed.
3. The peripheral countries persuade the Euro authorities to buy in more of their bonds to get the interest rates down, and to print more Euros to allow some devaluation of the common currency. In return the stronger countries take more control over borrowing and debt totals for all Euro members.
4. The German scheme of demanding more haircuts for bond holders in over borrowed countries and poorly financed banks prevails. The EU quickly enters the next phase of the Euro crisis, with market attacks on other countries and banks leading to bigger guarantees and ECB intervention. More powers are taken in the centre to control debt and deficits, but the rules are rapidly broken to allow bail outs.
5. The European authorities rapidly come of age, agreeing to issue more EU sovereign debts. The member countries have to accept more common taxation, more transfer payments around the Union, and mutual guarantees of the EU debt. The EU develops a proper financial government, with central decisions on how much common debt to issue and where to spend the money raised.