Controlled Dismantlement of the Eurozone: A Proposal for a New European Monetary System and a New Role for the European Central Bank

Abstract

In Kawalec and Pytlarczyk (2013), we argue that the single European currency constitutes a serious threat to the European Union and the Single European Market, and we propose a controlled dismantlement of the Eurozone. In this paper, we undertake a deeper analysis of the measures which would minimize the risks throughout the process of the Eurozone dismantlement and contribute to rebuilding confidence in the future of Europe.

· The dismantlement should be the result of a consensual decision to replace the euro with an alternative system of currency coordination.

· The dismantlement should start with the exit of the most competitive countries. In the meantime, the euro should remain the common currency of less competitive countries.

· The European Central Bank (ECB) should be preserved as the central bank for all 17 Eurozone member countries, even after some of those countries have replaced the euro with new currencies. In this capacity, the ECB should be in charge of designing, preparing, and implementing the segmentation of the Eurozone as well as managing the new currency coordination system – European Monetary System 2.

· The forthcoming EU – USA free trade agreement would build new momentum for economic growth and contribute to restoring confidence in the future of Europe.

As of today, neither the member states of the Eurozone nor European institutions such as the European Commission or the ECB have been able to come up with a game-changing proposal such as the Eurozone dismantlement. However, this may change as a result of adverse economic and political developments. One of the potential triggers could be the situation in France.

Keywords: Eurozone crisis, Euro breakup, European Central Bank, Dismantlement of the Eurozone, currency coordination, European Monetary System 2

JEL Classification: E5, E58, F15, F31, G18