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The Option Of Last Resort: A Two-Currency Emu

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Author Info

  • Arghyrou, Michael G

    ()
    (Cardiff Business School)

  • Tsoukalas, John D.

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.

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Bibliographic Info

Paper provided by Cardiff University, Cardiff Business School, Economics Section in its series Cardiff Economics Working Papers with number E2010/14.

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Length: 5 pages
Date of creation: Nov 2010
Date of revision:
Handle: RePEc:cdf:wpaper:2010/14

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Related research

Keywords: euro; two-currency EMU;

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Cited by:
  1. Arghyrou, Michael G & Tsoukalas, John D., 2010. "The Greek Debt Crisis: Likely Causes, Mechanics and Outcomes," Cardiff Economics Working Papers E2010/3, Cardiff University, Cardiff Business School, Economics Section.
  2. Eichler, Stefan, 2012. "Financial crisis risk, ECB “non-standard” measures, and the external value of the euro," The Quarterly Review of Economics and Finance, Elsevier, vol. 52(3), pages 257-265.
  3. Kasimati, Evangelia & Veraros, Nikolaos, 2013. "Should Greece adopt a dual-currency regime to resolve its economic crisis?," Journal of Policy Modeling, Elsevier, vol. 35(4), pages 588-600.
  4. Eric Dor, 2011. "Leaving the euro zone: a user’s guide," Working Papers 2011-ECO-06, IESEG School of Management.

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