[Steve_American]

Dr Bill Mitchell's blog today is a podcast with him and Dr Dirk Ehnts.

This is Episode 3 in the MMTed Q&A series.
It features Dr Dirk Ehnts from Samuel Pufendorf Society for Political Economy, which is based in Berlin.
He last book (2017) was – Modern Monetary Theory and European Macroeconomics – published by Routledge.
The two questions we discuss in this episode are:
1. “Could we have more details on MMT analysis of the process of destruction of/exit from fiat monetary unions like the Eurozone? (this was posed by Andrea)
2. “What would be the best option for the Eurozone to finance the appropriate and necessary extra spending by Member States in the current crisis? (this was posed by Julius).
The video goes for 22:05 minutes.

http://bilbo.economicoutlook.net/blog/?p=45234

[Steve_American]

No one has any thoughts on this?
Please, what are your thoughts?

[Steve_American]

I have a simple solution to the problems of the EU.
The problems are mostly that modern fiat currencies like the US dollar and the euro are not like gold. They are unlimited.
. . . It is not necessary now to do what they did under the gold standard, which limited the deficit and size of the national debt. So, they sold bonds to deficit spend. Now deficits don't matter much, and are actually good in that when people save this is always instead of spending, and spending is always someone else's income. So, saving always reduces incomes which reduces the GDP.
. . .[Inserted with an edit very soon. Basically, the problem with the EU is that since the GFC/2008 there has been no prosperity in a majority of its nations and little GDP growth in the rest. The reason is the inability to use the proven method called Keynesianism. IMHO, the reason it took WWII to end the Great Depression in the US was not that deficits don't work; rather it was that the politicians would not agree to big enough deficits to do the job. Then, obviously, the bigger deficits of WWI finished the job.]
. . . The treaties of the EU & EZ don't allow large deficits and especially national debts. But, with a sovereign fiat currency the national debt will never be paid off, like any loan that doesn't need to be paid back, this converts the bond into*just* and only just an asset of whoever holds it.
The limits in the treaties are the problem. This problem is different from the one the US Gov. had with its founding charter, the Articles of Confederation. The US solved its problem with a Constitutional Convention, that ignored the Articles' rule that all 13 states had to agree to all amendments.

So,the solution for the EU & EZ is to do exactly the same thing. Call a Constitutional Convention and whoever comes (is sent by the various govs.) writes a new set of rules that uses the sovereign fiat currency (euros) better to provide the prosperity that savings is keeping from the people of the EU. And, then the delegates do the same as the US did and start the new EU when (say) any 20 nations have agreed to join it.

[Yes, it is more complex than the US in 1787 was. This is because Europe wants to make/keep the national govs. sovereign and the US didn't really do that.
So, the EZ will need rules for how the govs. can sell bonds that will be rolled over forever. Obviously, this can't be unlimited. If it was some nations could enact (just for example) a UBI** and the people could use these euros to buy stuff from other nations. They get the stuff and the people of the other nations get the euros. However, the UBI gave them the euros for free and so they got the stuff for free. In this case the number of euros would grow very fast because most nations would try to do this.
. . . Where would the new euros be going? Well, mostly into buying bonds being sold by the nations that have the new UBIs. These bonds are backed by the full faith and credit of the ECB, so they are as good as gold. There is zero default risk. As long as the bonds are being sold at the low interest rate the ECB wants to pay, everything is fine. Some people get free euros to buy "free" stuff and other people get bonds that let them save in the way they *want to* save.
. . . The problem I see is what happens when the bonds are not *all* bought by savers who want to use them for their savings. Let's assume for the moment that the ECB buys them when they are not sold to people***. As I see it this is *the* problem. The nations giving the UBI have no reason to keep it small. The bigger it is the more free euros its people get. How will they see this as a bad thing?
. . . I don't have a solution, but I'm 99% sure there is one. I would love it if someone would propose one here.
. . . If I think of a *possible* one I'll use an edit or a new reply to give it to you later.]


. ** . The govs. could instead just buy stuff it needs or pay its gov. workers (teachers) more, etc., etc.
. ***. As I see it the ECB must buy them. It must also roll them over forever whenever they come due. This how the interest rate is kept down and the bond market is denied power.