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Debate: Scrapping the Euro

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This House would scrap the Euro.

Contents

Background and Context of Debate:

Should the Eurozone member states, throughout the next ten years, convert from the common European currency back to national currencies, reinstating national central banks and their control of the monetary policy, i. e. interest rates setting, currency emissions, and other operations to influence the currency?

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The European Central Bank: Is it worse than national central banks?

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Pro

  • ECB is too distant from member economies. A classical management theory: the larger your company, the sooner the communication has to break down. EU itself is a classic model of inefficiency and waste; having it in charge of monetary policy is a thing which inevitably has to result in a break-down simply because of management issues.
  • ECB is Inflexible: One-size-fits-all interest rate does not exist. Interest rates height is a way of checking economic growth and resultant inflation – in short, if you raise interest rates, borrowing money becomes more expensive, thus less money comes into circulation and inflation, as well as economic activity, is curtailed (and the opposite can be done for encouraging both). It is also a way to encourage investment. However, need for investment and need for (anti-)inflationary control differs from one area to the other even within Member States, let alone among them.
  • ECB is Unresponsive. The ECB has too large a constituency, too large a responsibility, and too large a power: it becomes impossible to respond swiftly with a bureaucratic apparatus as big as the ECB has to have to keep checks on the entire Eurozone. (Yes, it can partially rely on existing infrastructure of extant national central banks – but if so, why not allow them to decide about specific steps needed in each country?)
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Con

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Moral hazard: Does the Euro create a moral hazard?

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Pro

  • Incentives to cheat. The distance and lack of punitive measures make it appealing for member countries to cheat their way to economic growth, as could be seen on the example of Greece. Because countries with worse fiscal discipline are prone to cheat more, it can lead to more collapses in the future, thus the members with sound finances will be forced to bail out the more fiscally imprudent.
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Con

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Fiscal-monetary mix: Is stability within the eurozone undermined?

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Pro

  • No one-size-fits-all fiscal-monetary mix. Economic growth can be fueled by both fiscal and monetary policy, but they need to work together. Unlike national central banks, the ECB cannot create a monetary policy that would work in accordance with each and every state's fiscal policy. This produces varied effects that are difficult to predict, as a unified monetary policy can have no effect in some countries and multiply the effect of governments' fiscal policies in another countries.
  • Floating currency. Currencies generally work in an anti-cyclic way. Thus, for example, during a recession, a currency devalues, which leads to an increase in exports, and thereby ameliorates the impacts of the crisis. Or vice versa, during a boom, currency strengthens, thus increases imports and prevents overheating of the economy. However, this cannot work in the Eurozone, as member countries do not find themselves in the same cycle and there is no "one-size-fits-all devaluation."
  • Even if stability were achieved in the short term, moral hazard undermines it in the long term.
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Con

See also

External links and resources:

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