The Option Of Last Resort: A Two-Currency Emu

Michael Arghyrou and John Tsoukalas

No E2010/14, Cardiff Economics Working Papers from Cardiff University, Cardiff Business School, Economics Section

Abstract: This article, originally published at www.roubini.com on 7 February 2010, spells out our two-currency EMU proposal as a plan of last resort for resolving the present EMU sovereign-debt crisis. The key ingredients of our proposal involve a temporary split of the euro into two currencies, both run by the European Central Bank. The hard euro will be maintained by the core-EMU members whereas periphery EMU countries will adopt for a suitable period of time the weak euro. All existing debts will continue to be denominated in strong-euro terms. The plan involves a one-off devaluation of the weak euro versus the strong one, simultaneously with the introduction of far-reaching reforms and rapid fiscal consolidation in the periphery EMU countries. We argue that due to enhanced market credibility, our two-tier euro plan has a realistic chance of success in resolving the EMU crisis, if all other approaches fail.

Keywords: euro; two-currency EMU (search for similar items in EconPapers)
JEL-codes: E44 F30 G01 (search for similar items in EconPapers)
Pages: 5 pages
Date: 2010-11
New Economics Papers: this item is included in nep-cba, nep-eec, nep-ifn, nep-mac and nep-mon
References: Add references at CitEc
Citations: View citations in EconPapers (7)

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