Tuesday, August 21, 2012

Another take on preserving the Euro

The recent Euro problems are quite well known and many of the Euro countries are unable to keep to the 3% deficit limit. The problem is that it is difficult to keep to the 3% deficit limit when the global economy is still trying to recover from the 2008 great recession. Greece in particular hasn't really recovered from the great recession partly because their finances do not allow them to stimulate the economy. In fact, they are firing more state workers, worsening the economy in order to keep to the deficit limit.

Keeping to the deficit limit is important because one should never spend more than you have. Germany does not hope to write too many blank cheques to the other Euro countries because no matter how rich you are, sooner or later you will be bled dry if you do not have the fiscal discipline. Therefore, I hope to look at the Euro problem from another angle.

The long term plan to reduce the deficit should still continue but the Euro area could establish a economy stimulus fund for the Euro zone. The country is eligible to write up a plan on what they are intending to do, the funds required, the ROI and the repayment terms. The funds granted by this stimulus fund will be "excluded" from the calculation of the deficit but there should be strict adherence to the terms and conditions once the funds are disbursed.

This will help the Euro area to return back to their 3% deficit limit and yet secure additional funds to stimulate their economy. Like it or not, those countries need to stimulate their economies and its definitely not going to air-drop to them from the sky.


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