It has become increasingly popular to call for breaking up the Eurozone according to a system of policies known as “Secession Theory.” Notwithstanding, Secession Theory cannot be practically applied without shattering the EMU system. Instead, Eurozone leaders should consider Macroclimate Reform.
Secession Theory proposes three EU policy adjustments that could each plausibly restore Eurozone stability: 1) a German exit to lower the high competitive market standard; 2) a Greek exit to eliminate fiscal stagnation; and 3) a stage-managed German and Greek withdrawal to cleanse the system and lower competitive standards to a level at which all Eurozone countries can operate. Secession Theory, however, is not a particularly realistic undertaking. These “quick fixes” to the immediate symptoms of the Euro crisis confront the issue from a viewpoint that understands the Eurozone as a collection of self-interested states operating within a vastly differentiated economic framework. Unfortunately, it does not address the structural flaws of the EU as a whole, which are damaging state solvency and sucking the blood from EMU markets.
Several flaws in Secession Theory would not only lead to failure in achieving EMU balance, but may also cause further macroeconomic damage to the Eurozone. They include:
- A German secession would incur economic stagnation as the deteriorating Greek economy continues to devalue the Euro, further injuring dwindling state markets.
- A Greek exit and re-adoption of the drachma would impose severely elevated costs on the public and private sectors, forcing Greece to default on its loans. This default could result in the economic collapse of European banking systems holding Greek debt, causing prolonged stagnation and inhibited economic growth.
- A joint, strategic exit by Germany and Greece could shock Eurozone markets and instill widespread economic panic in the absence of both the high and low competitive standards these states have respectively created.
Despite its good-humored reception and the amount of support for its implementation, Secession Theory leaves too wide a margin for error to offer any kind of long-term stability to the Eurozone.
Macroclimate Reform compensates for the gaps in Secession Theory and attacks the debt crisis with recommendations for EMU systemic restructuring. This approach aims to reinstate sustainable fiscal balance and reliable debt insulation in the Eurozone.
This theory has been formulated to address the principal faults of the EU fiscal system, including the absence of a universal debt regulation mechanism; the extensive reliance of states with outstanding debt on failing loan programs, such as the International Monetary Fund and the European Central Bank; and the robust German and poor Greek standards jointly polarizing the Eurozone into one economically stronger part and one weaker part. These flaws have prevented the development of state solvency within the EU and the implementation of development programs. Macroclimate Reform identifies three chief EU policy modifications as imperative agents for long-term economic stability:
- The establishment of an EU Treasury modeled after the U.S Treasury, which will adopt an adjusted European government bond program in place of external aid.
- Limited German concession to these bond programs as one of the most economically powerful EMU states.
- Greek secession from the Eurozone, with the promise to repay its outstanding debts.
These measures aim to lower sovereign debt ratios and allow room for fiscal growth within the Eurozone and, by connection, the global economy.
Macroclimate Reform would not only ensure the improvement of economic stability in European markets, but it would also create lower debt ratios for peripheral states on the verge of collapse. The presence of an EU Treasury fueled by German-supported government bonds would offer structured fiscal policies and help to prevent global recession. These new fiscal regulations contain sovereign debt relief within the EU and promote inter-economic cooperation among sovereigns.
A Greek secession—when applied to this new system under Macroclimate Reform policies—would allow for freer capital flows, the expansion of commercial markets, and ensure healthy fiscal growth in the Eurozone without the extended threat of stagnation. With the assistance of an adjusted German standard, the EU Treasury would also be able to help Greece repay its debts via a customized government bond program.
The European sovereign debt crisis remains a prevalent issue that threatens the growth of the U.S. economy, as well as global market stability. Macroclimate Reform is one of countless viable solutions for long-term recovery, future debt insulation, and growth in the Eurozone. Although instability remains a primary concern in Europe, an effective cure to the crisis must be implemented soon to prevent continued international recession.
Patrick McQuillan is currently an undergraduate candidate for a Bachelor of Arts in International Affairs and Economics at Northeastern University. He recently returned from the United Nations Headquarters in New York City, where he served as a political analyst and conference officer for the UN General Assembly and the First Committee on Disarmament and International Security. Previously, he conducted independent weapons research with the United Nations at their European office in Geneva, Switzerland.