The race to a Euro-crackup seems to have slowed down to merely a jaunty saunter this week. Maybe once everyone made it to the New Year without a sovereign default, the Eurocrats might have breathed a sigh, confident that there’s still a few miles yet before they went over the falls…
Germany could create a parallel currency—a new D-Mark, pegged at 1.0 to the euro. The German government would guarantee that holders of German government bonds could convert euro securities to new-D-mark instruments on a one-to-one basis up to some designated date, perhaps two years in the future. Private German contracts expressed in euros would switch to new-D-mark claims over the same period. The transition would likely feature a period in which the euro and new D-mark circulate as parallel currencies.
Other countries could follow a path toward reintroduction of their own currencies over a two-year period. For example, Italy could have a new lira at 1.0 to the euro. If all the euro-zone countries followed this course, the vanishing of the euro currency in 2014 would come to resemble the disappearance of the 11 separate European moneys in 2001.
Of course, this would mean that any bonds from the PIIGS with a maturity date more than two years in the future would trade at a heavy discount, but that’s far preferable to the looming Euro crash. But a bigger problem to this proposal actually being implemented is that it reverses the drive to centralize European bureaucracy, and Eurocrats will never stand for that.
(Hat tips: Insta, Ace (most of the Greek stories), and Sundry.)