A 10-Step Plan To End The Eurozone Crisis

Jean Claude Juncker

Photo: Wikimedia Commons

In an interview with German newspaper Handelsblatt (via Reuters), Eurogroup Chairman Jean-Claude Juncker proposed 10 suggestions to save the euro.While Juncker’s ideas are little more than suggestions, this is the biggest sign we’ve seen recently that EU leaders are contemplating a permanent endgame to the crisis in the eurozone.

Whether or not these ideas will gain any traction among euro leaders is another story. and one we could see play out at their highly anticipated meeting October 23.

The next tranche of $11 billion in bailout aid promised by the EC/ECB/IMF troika last year came under fire once Greece announced that it could miss its deficit-reduction and privatization goals for the year.

Doubt intensified once that fear became a reality.

Troika inspectors yesterday rubber-stamped the plan, virtually assuring its passage by the Eurogroup and IMF. However, their assessment was contingent on promises by the Greeks to pass austerity measures, the most controversial of which are up for a vote on October 20.

Greek debt is out of control, and the current debt exchange deal will not change that. rumours rage on recently about the extent of private sector involvement in that deal, with estimates of anywhere between a 30% and 115% haircut for Greek bondholders.

DON'T MISS: Why Nomura says a bigger haircut is actually a good idea >

Failure to keep track of and prosecute nations that violated the terms of euro membership constitutes the main reason the region is in crisis right now.

Eurozone leaders still have few tools to make national governments behave.

Bank recapitalization has been the talk of the town recently. EU leaders have fallen short of promising to shore up struggling banks across the eurozone, rather than just in the troubled periphery.

Juncker appears to be following in this vein. However, he also emphasises that taxpayers should be rewarded for rescuing banks via dividends and stronger representation.

Implement a financial transaction tax.

German Chancellor Angela Merkel and French president Nicolas Sarkozy publicly committed to this idea at a press conference in August.

Investors and traders think this is a terrible idea.

Growth is one of the most significant obstacles to returning PIIGS countries like Greece, Italy, and Ireland to fiscal health.

Contraction in Greece has hindered the government from meeting goals laid out by the EC, ECB, and IMF in the first bailout last year, and continues to stymie the country's prospects.

Various countries across the euro area have announced their intentions to enact laws that would require their governments to maintain balanced budgets.

The jury's still out on whether that's just talk.

Stronger regulation could prevent speculators from attacking at-risk countries and shooting their borrowing costs sky-high.

EU governments have tried to prevent this so far by banning short sales.

Rating agencies have become the focus of government rage, as they continue to downgrade PIIGS and core countries alike. Because ratings are a huge factor in determining sovereign borrowing costs, countries are loathe to permit a downgrade, even at the expense of the greater European project.

On one hand, the changing role of ratings agencies could be causing anguish. On the other, governments may just be angry that everyone knows their finances are going down the tube.

The number of voices clamoring for changes to euro governance is growing rapidly, with even German Chancellor Angela Merkel and French President Nicolas Sarkozy suggesting that treaty changes could be the next big step towards fixing euro governance.

This is a Catch 22, however. Key changes to eurozone governance will take time to ratify and could even require many sovereigns to change their constitutions. However, there is no time to waste on addressing the pressing economic concerns in the eurozone, particularly as the situation begins to deteriorate. Impetus for big changes stems directly from the crisis, and approval for such changes could vanish quickly once it is dealt with.

Banks have the most to lose if the eurozone crisis is not quickly dealt with.

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