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An end to Europe’s monopoly money

Professor Booth suggests allowing currencies to compete with the euro

The euro has undoubtedly brought a lot of benefits to member countries but high unemployment, a rigid labour market and a single currency has made it very difficult for some member states to deal with economic shocks. One possible way to deal with this rigidity, according to Cass Professor Phillip Booth, is to allow euro zone countries to create their own currencies to operate alongside the euro.

Under Professor Booth's proposal, outlined in this week's Cass Talks, the euro would remain in place for current member states but the treaties would be amended to allow any euro-zone government to make any other currency it wishes legal tender. Germany, for example, may opt to keep the euro and only the euro whereas Ireland may opt to have sterling, a new punt and the euro all as legal tender. No country would be able to opt out of the euro but no country would be forced to have the euro as a single legal-tender currency.

These competing currencies for the euro would result in pressure on the ECB to keep the euro a low-inflation currency. This scheme would also allow countries the flexibility to negotiate and compose contracts in either currency meaning transaction costs could be kept low whilst facilitating trade within the EU.

However, this is purely a solution for the EU's monetary problems. This scheme, or any other, is not feasible if the debt burden of some member countries is not dealt with. Professor Booth says: "Greece has outstanding debt of 126.8% of GDP and Italy 118% of GDP. We can no longer package and repackage these debts and pretend that some future generation of taxpayers will be able to pick up the bill. We need a European Union that puts decentralisation and competition at its heart rather than centralisation and monopoly. This process should start with monetary and fiscal policy; the need is urgent."

Professor Booth is editorial and program director at the Institute of Economic Affairs and Professor of Insurance and Risk Management at Cass Business School. His dual currency theory was developed alongside Mr. Mingardi who is director general of the Istituto Bruno Leoni, a Milan-based think-tank. Professor Booth and Mr Mingardi's theory was recently published in the Wall Street Journal Europe.

 The Cass Talks interviews are an opportunity to hear Cass faculty and prominent alumni give their perspective on current business and finance news stories, global issues affecting the business world and new research coming out of the School. Listen, watch and download Cass Talks and see other Cass academics share their opinions at:

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