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Jul 25 2012

The big announcement out of Brussels

Published by at 8:04 am under Europe,Opinion,Top Stories

The pressure is building again around the Euro and Euroland. But, this time the response is different. This time there’s no talk of another summit and another massive “Rettungspaket” for countries and/or banks. This time a different wind is blowing around the capitals of Europe. 

In the past week or two there has been a subtle, but clear move away from the idea that ‘Euroland must be saved at all cost, and anything else is too ghastly to contemplate’, to the view that Greece must go if it can’t stick to the agreed plans.

It’s quiet in the political capitals of Euroland – not only because its summer holiday. Also because, I sense, we’re shortly before a major announcement out of Brussels. This is the quiet before the storm.

When the announcement comes, it’ll surprise in two ways. Firstly, with its timing. It’ll come when the financial markets don’t expect it (are relatively strong). And it’ll come on a Friday afternoon late.

It’ll also surprise with its content, in the sense that it’ll not only be about Greece. It’ll contain a solution for all the Club Med countries, namely Greece, Cyprus, Italy, Spain and Portugal.

The announcement will be short, sweet, simple, but effective. It’ll read: When the markets open on Monday, the Club Med countries will have a different currency (let’s call it Euro II), and this currency will have a value CLEARLY lower than the Euro (at least 30% lower). It may (or may not) be linked to the Euro at this lower level – I haven’t thought that one through. (In fact, I’ll go for the “not-linked version”, since the Euro will start appreciating after the announcement, and if the Euro II is linked, the appreciation will neutralize what was intended in the first place, namely to restore the international competitiveness of the Club Med economies.)

But, all the Club Med countries will have the same currency.

The weaker exchange rate will enable the Club Med countries to compete with the outside world again – and to get their exports back on track, which is essential for debt servicing and reduction. The devaluation will act as a “growth stimulation package”, like no other in recent history.

The “growth stimulation package” will restore confidence and (almost immediately) unleash a positive growth force of huge dimensions. The populations of the Club Med countries will go onto the streets and celebrate their “release from the Euro prison”.

Furthermore, Brussels will announce that the Euro II will stay in circulation for at least 5 years, when the situation will be reviewed and those economies that have by then responded positively to the “export growth incentive”, will be taken back into Euroland. Others will have to remain outside until the next review date – at least 3 years later. (At this stage, the gap between the Euro and Euro II should be narrower than 30%.)

It won’t be said, but re-entry may eventually prove impossible for countries with very weak export sectors, such as Greece.

The 30% devaluation overnight will, of course, have major consequences for the foreign debt of the Club Med countries. The announcement will also have a solution for this issue, but I won’t try to take a guess on that technical point. (It could entail a massive roll-over of debt, combined with a 30%-reduction in debt-service payments in Euro, for 5 years. But, without explicit debt right-offs. Still, the banks will be hit hard by the overnight devaluation of their Club Med assets.)

Suffice to say, the announcement out of Brussels will finally, effectively and elegantly bring an end to the Euro crisis. And leave all Europeans to go on their summer holidays in peace, knowing that their jobs will still be there when they come back and the threatening Euroland-wide recession has been fended off.

In Berlin Angela Merkel’s colleagues will be elated, because “the solution” will improve their chances of being re-elected in 2013 massively.

 

One response so far

One Response to “The big announcement out of Brussels”

  1. adminon 25 Jul 2012 at 2:24 pm

    And what will the Brussels announcement say about the practical issue of bank notes and coins in circulation?

    All notes and coins in circulation with landmark illustrations of the Club Med countries on their backs will take a 30% drop in value against the Euro. That is the contribution of the citizens of the Club Med countries to the solution of their own state debt problems.

    Some of these notes and coins are also in circulation in non-Club Med countries (with the Euro). Citizens of non-Club Med countries (eg. Germans, Frenchmen) with Club Med-notes and coins in their possession, will be able to swop them at banks for Euros on a 1:1 basis within 10 days after the particular Monday. So, the cash in their pockets won’t be hit.

    But, the notes and coins in circulation from Euro countries (eg. Germany) will increase in value in the days after the announcement, ie. the gap between the Euro and Euro II will grow wider than 30%. Clever Italians will hang on to their Euros and not exchange them for Euro IIs, thereby neutralizing/limiting the damage they suffered with the introduction of the Euro II.

    PS. This as a short-term solution. To give Brussels and the Club Med countries time to design, print and introduce a new set of Euro II notes. At this stage the Club Med countries decide to call their new currency the Drapera (from drachma, peso and lira).

    Cute name, or what?

    Christo

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