'Weak Sisters' Should Leave, Forget Bailouts: Opinion

But back to the weak sisters. Since their entry into the surozone, this market adjustment mechanism has been lacking. But the productivity and cost differentials vis-à-vis Germany have continued to grow. So what has happened? Unemployment rates and trade deficits in the weak sisters have continued to grow.

The Solution

The weak sisters should leave the eurozone and go back to having their own central banks. Why would this help? Because with their own currencies, their exchange rates would start adjusting again for productivity and cost differences. And with their own central banks, instead of having to reduce their government deficits as they are obliged to do under ECB/IMF mandates, they could launch new stimulus packages to get people back to work. These stimulus packages would be financed by their central banks buying up the increased government deficits.

Will these adjustments be chaotic with moments of panic and frenzy? Yes. But bailouts coupled with austerity are only band-aids that will mean more serious problems later. Time for a reset.

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