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The Option Of Last Resort: A Two-Currency Emu

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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.

Suggested Citation

  • Arghyrou, Michael G & Tsoukalas, John D., 2010. "The Option Of Last Resort: A Two-Currency Emu," Cardiff Economics Working Papers E2010/14, Cardiff University, Cardiff Business School, Economics Section.
  • Handle: RePEc:cdf:wpaper:2010/14
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    Cited by:

    1. 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.
    2. Eric Dor, 2011. "Leaving the euro zone: a user’s guide," Working Papers 2011-ECO-06, IESEG School of Management.
    3. Michael G. Arghyrou & John D. Tsoukalas, 2011. "The Greek Debt Crisis: Likely Causes, Mechanics and Outcomes," The World Economy, Wiley Blackwell, vol. 34(2), pages 173-191, February.
    4. 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.
    5. Dimitri B. Papadimitriou & Michalis Nikiforos & Gennaro Zezza, 2014. "Prospects and Policies for the Greek Economy," Economics Strategic Analysis Archive sa_feb_14, Levy Economics Institute.

    More about this item

    Keywords

    euro; two-currency EMU;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F30 - International Economics - - International Finance - - - General
    • G01 - Financial Economics - - General - - - Financial Crises

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