Greece is on the verge of bankruptcy, and Spain is battling unemployment, record interest rates and ailing banks. Hardly a day goes by without more bad news coming from Europe's financial markets.
The crisis is not going away - in fact it's getting worse. Politicians and economists are at odds on they view the mess: some see a possible end of the euro currency as an economic and politic catastrophe, while others prefer a painful end over a long, drawn-out breakdown. It's better, they argue, to have a smaller eurozone or to return to national currencies than to keep throwing good money after bad.
New ways of thinking
The 17 European economists brought together by the Institute for New Economic Thinking (INET) for a council on the eurozone crisis have a gloomy outlook. Europe, they argue, is headed for a disaster of incalculable dimensions.
The INET think tank is financed by US hedge funds manager George Soros and works to develop new economic concepts.
Hans-Joachim Voth of Pompeu Fabra University in Barcelona, a co-author of the report, said the idea behind the report, was to have a small group of leading economists from different schools of thought come together and find a consensus, one that would be realistic and at the same time offer a chance to ward off the euro crisis and prevent the eurozone from breaking apart. Their conclusion: there is still a way to avert disaster.
Structural changes for the eurozone
Enormous efforts are required for the single currency to be preserved, concludes the report. In the long term, structural adjustments would have to be made to iron out the mistakes made when setting up the single currency. Europe, for instance, would need a common banking supervision, a common deposit guarantee, a stronger centralized control over government debt and common risk free investment instruments, the experts suggest.
But first, a package of immediate analysis measures is needed to help the troubled countries of Europe's south to give them a chance to start economic reforms. The rescue funds demanding tough austerity measures are doing more to harm the economies of those countries than to help them, Voth and his colleagues believe.
One would have to differentiate between the mistakes of individual nations and structural burdens from previous years - the eurozone crisis was not simply caused by the southern countries and their alleged unwillingness to tighten the belt.
"This is a wrong diagnosis, and it's an unfair diagnosis," says the report, adding that both the southern and the northern countries have together set up a flawed construct akin to first building the roof of a house and then looking at fixing the base.
As a preliminary emergency measure, the experts suggest that the European Central Bank should buy up government bonds from ailing countries on a grand scale, in order to stop the spiral of interest, speculation and panic at the markets. The euro rescue fund ESM should, according to INET, get a banking license so that it would be able to take on higher credit lines, giving it more firepower. And the old debts of the struggling countries should be pooled together with the eurozone assuming collective liability for the debts - a pooling of debt akin to the suggestions of the German Council of Economic Experts, a group that advises Berlin on economic questions.
A return to the deutschmark?
But at the moment, Berlin won't have any of that collectivization of debt - and accordingly, reaction to the report from the capital was quite reserved. Georg Streiter, a government spokesman, said it was merely "one of many expert opinions which we will take into account."
Voth himself admits that the suggested measures would be very difficult to communicate to the voters of the northern countries. He even thinks it would be possible that Germany would rather leave the eurozone than shoulder even more of the burden.
However, Voth's co-author and colleague, Peter Bofinger, sees a return to the deutschmark as the "most risky of all solutions." A breakup of the eurozone would mean a "massive economic shock and significant losses to our financial system," he told German public broadcaster ARD. It would threaten Germany's competitive position and "cost many jobs."
Voth, though, sees things in a somewhat less dramatic fashion and says that among the 17 INET experts there were quite different views on that matter. "I believe the actual message to the German public is: If we want to save the euro, it will be extremely expensive - there's no point in denying that. Either we'll do properly or we don't do it at all."
Author: Michael Gessat / ai
Editor: Martin Kuebler