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Institutionalizing eurozone exit: A modified NEWNEY approach

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  • Huck, Steffen
  • Valasek, Justin Mattias

Abstract

In this note, we argue that the Eurozone needs an institutional exit mechanism to enhance Eurozone stability, and propose modifications to the Dobbs' NEWNEY mechanism, the only mechanism that satisfies the twin properties of eliminating incentives for intra-Eurozone capital flight and maintaining Eurozone price stability. Our modifications eliminate moral hazard, allow for a fair distribution of costs (between and within countries) and are also appropriate for the exit of a fiscally strong country. -- Wir befürworten einen institutionellen Exit-Mechanismus für die Eurozone, nicht zuletzt um die Stabilität der Eurozone zu stärken, und schlagen Modifikationen zu Dobb's NEWNEY Mechanismus vor, dem einzigen Mechanismus, der Anreize zu Kapitalflucht innerhalb der Eurozone eliminiert und Preisstabilität garantiert. Unsere Modifikationen eliminieren moral hazard und erlauben es, die Kosten eines Exits gerecht zu verteilen, sowohl zwischen Ländern als auch innerhalb eines Landes. Der modifizierte Mechanismus eignet sich nicht nur für den Exit eines fiskalisch schwachen, sondern auch für den Exit eines fiskalischen starken Lands.

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Paper provided by Social Science Research Center Berlin (WZB) in its series Discussion Papers, Research Unit: Economics of Change with number SP II 2012-304.

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Date of creation: 2012
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Handle: RePEc:zbw:wzbeoc:spii2012304

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Keywords: Supranational Unions; Efficiency; Public Goods; Redistribution; Federalism; Legislative Bargaining;

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  1. Sinn, Hans-Werner, 2012. "Target losses in case of a Euro breakup," Munich Reprints in Economics 19622, University of Munich, Department of Economics.
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Cited by:
  1. Christian Fahrholz & Cezary Wójcik, 2012. "The Eurozone Needs Exit Rules," CESifo Working Paper Series 3845, CESifo Group Munich.

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