By Simon Johnson; this post comprises the first three paragraphs of a column now running at Bloomberg View.
Jean-Claude Trichet, president of the European Central Bank until October, last week floated two proposals aimed at dealing with Greece and related eurozone public-debt problems.
The first idea would allow European Union authorities to override the policy decisions of member governments that can’t come up with sustainable budgets, implying the creation of an external control board for the likes of Greece. This approach has been used in the past for very weak countries (as well as for the cities of New York and Washington in recent decades). In Europe today, it would have no political legitimacy and would be completely unworkable — imagine the street protests it would spark.
The second idea would, down the road, create a finance ministry for the European Union. It would issue debt and have responsibility for a unified financial sector. This is just as brilliant as Alexander Hamilton’s fiscal and financial integration proposals for the young American Republic and, if implemented properly, would fix the deep problems caused by the original design of the eurozone.
To read the rest of this column, please follow this link to Bloomberg View: http://www.bloomberg.com/news/2011-06-06/europe-needs-trichet-s-unified-finance-ministry-simon-johnson.html