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Wolfson Prize Shortlist Offers Many Roads To Euro Change

An eleven-year old Dutch boy was awarded €100 for his proposal on how best to eject a country from the eurozone. According to the FT, “his plan involved Greeks receiving drachma in return for their euros, which would be combined to form ‘a pancake or pizza’ – whether metaphorically or literally was not specified – that would then be used to pay off the country’s creditors.”

Despite this special recognition, the eleven-year old boy didn’t make the shortlist of finalists vying for the €250,000 Wolfson prize. The proposals from the five finalists (all of which you can read here) offer wide-spanning solutions for how best to dismantle the eurozone.

One suggests that the exit-planning be conducted by Germany and France alone and in secret, to minimize the market’s “constant probing and re-evaluating [of] the probabilities and scale of alternative outcomes” and stipulates that “planning for an exit which remains as orderly as possible will inevitably require secrecy of a military order.”

Then there is a proposal to split the European monetary union into “white” and “yolk” regions, with the yolk regions needing to focus on restoring competitiveness through currency devaluations to be overseen within a new framework of predetermined fixed exchange rates: “The transfer to the new currencies, and equal treatment of all Euros throughout the Economic and Monetary Union, can be achieved by the central banks agreeing that every existing Euro gets exchanged for a fixed combination of the two currencies, the New Euro-White and the New Euro-Yolk.”

There is a proposal that calls, among other things, for a new European Currency Unit and for the subsequent creation of a new regulatory framework to gradually phase out Euro exposure and “to monitor and over time reduce intra-Eurozone currency exposure for systemically important institutions.”

And there is a historical take, which points out that currency breakups have occurred many times in the past (69 times within the past 100 years, to be precise) and that exits from currency unions to new ones can be done quickly, efficiently, and with low resulting macroeconomic volatility. This view emphasizes that the real problem is not the mechanics of a currency breakup but the currently overvalued exchange rate and extremely high debt and calls the euro “a modern day gold standard where the burden of adjustment falls on the weaker countries,” blaming it for the massive external debt imbalances between the EZ’s member states.

All five proposals in fact suggest that the mechanics of a currency exchange are not quite as complicated as other challenges, such as the legal process of breaking up the Eurozone, or how to redefine Euro contracts in a new currency order, or how and whether to conduct exit-planning in secret. The common thread running through the proposals suggest that the major barrier facing Europe is not primarily economic but institutional and political. Currency breakups have happened before, and there are numerous forms they can take. If the Wolfson Prize competition makes anything clear, it is that there is no single solution for Europe’s enormous problems. Given the enormity of the task at hand – a problem that vastly transcends the actual economic mechanics of dismantling a currency union and calls instead for the dissolution of one of history’s most complex political and legal institutions – we won’t be out of the woods anytime soon, bright ideas or no.

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  • Eric

    Well the EU has been working their way through Australian fauna for their money for a while now. We’ve had the EMU (a flightless bird) and the Euro (a type of kangaroo). That neatly fits our Aussie coat of arms.

    So I propose, in keeping with the heretofore elegant philosphophy of currency naming, the new ECU be called the Wattle. From Python:

    “This here’s the wattle, the emblem of our land. You can stick it in a bottle, you can hold it in your hand.”

    Or you can put it under a mattress. Just don’t let it get near to any politician.

  • Luke Lea

    ““white” and “yolk” regions, with the yolk regions needing to focus on restoring competitiveness”

    Ah, political correctness run amok!

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