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Europe's suicide in a global perspective

Post By gaia1 in European Union


Monday, April 16, 2012

In his April 16 New York Times column entitled “Europe’s economic suicide” with its summary statement of “Trying for a second Great Depression” Paul Krugman points to two solutions after arguing that the present economic and social condition in Europe cannot go on. One of them is exiting from the euro, the other, if “European leaders really wanted to save the euro” is quantitative easing like the USA did and is doing. There is a third solution: it would keep the euro and its monetary union intact and places its resolution in truly global perspective.

Quantative easing (QE) would beneficial to all nations if they all agreed to do this at the same time and within a clear set of principles. It is problem if one powerful nation or group of nations engages in QE by themselves and when there are no rules. Thus, QE by the U.S. Fed makes American and other investors get cheap money which they will invest in commodity markets or in derivatives of those markets. The end result is monetary, financial and economic instability of the capital flow importing country, further destabilizing the global monetary, financial, economic and commercial systems.

What kind of rules or global architecture could promote healthy QE?

Given that the international monetary system, like glue, binds together the monetary, financial, economic and commercial systems and can be considered to be the linchpin of those systems, the answer is to be found in this global monetary system. By establishing a Global Central Bank nations that would monitor, regulate and engage in QE, nations would have an ample source of financing, particularly if the new financial system would be based upon money or credit and not on debt and if the privately-owned banking systems would operate on 100% reserves, i.e. do not engage in money creation.

If nations would become serious about the threat of a global warming catastrophe, they could base this new international monetary system on a carbon standard. In that way nations that are seriously decarbonizing their societies would strengthen their economies and their associated currencies.

Details of why this alternative is to be taken and how it could come to pass are described in Verhagen’s The Tierra Solution: Resolving the Climate Crisis through Monetary Transformation which will be on the market at the end of this month. The publication will coincide with the medium budget plans EU nations have to submit at that time and thus its solution could become part of the discourse of alternatives to the euro crisis which is causing such social havoc with its impossible austerity budgets.