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From Grexit to Gerexit

  • more monetary competition

More monetary competition, this is the promising title of Markus Kerber's new book, in which he makes the case for establishing currency competition to solve the current conflicts within the Eurozone. Kerber is a law professor at my alma mater and for this reason alone, of course, his book deserves attention. Moreover, he is the founder and president of Europolis, a think-tank based in Berlin and Paris that opposes the extension of the "pathological interventionism of the French state" over the entire European Union. Europolis relentlessly promotes "more competition" both in markets and in the phere of political and legal institutions. More competition is also needed in the production of money. Kerber renews the proposition made by the Bank of England in 1990, to set up the European monetary union as a competitive order, in which the euro would be a parallel currency next to various national currencies. This would most notably facilitate the Grexit, an exit of Greece from the Eurozone. More generally speaking it would facilite the re-introduction of national currencies circulating in parallel with the euro. Kerber does not spend much ink making the economic case for currency competition, which, in the mild form championed in his book, is relatively uncontroversial among German monetary economists. He focuses on the legal issues. Here he stresses most of all that the introduction of parallel national currencies would not be a violation of the contractual stipulations of the European monetary union. The reason is that any contract between sovereign nations are premised on, well, national sovereignty. But a nation is sovereign only to the extent that it controls the amount of money it pays to foreign persons and organisations. As things stand right now, Germans and other European citizens are footing an open-ended bill for the spendthrifts in Greece and elsewhere. They seem to have no possibility to close the ticket and say good-bye. In this context, Kerber highlights a neglected reason why a Greek exit, against all conventional economic wisdom, is so adamantly opposed by the political establishment. Indeed, a Greek exit would set a legal and administrative precedent for the exit of other countries. So far, no official preparations whatsoever have been made to handle any exits from the Eurozone. European monetary union was supposed to be one-way only. A Grexit would require the establishment of legal and administrative procedures that could then also be relied on by other countries. This would not only concern insolvent net-beneficiaries of subsidies out of the printing press, but also and especially countries such as Germany, the Netherlands, and Finland. These net-loosers of the ECB's inflationary bail-outs represent a structural minority in the ECB's governing council. They therefore cannot overturn current ECB policies, but a Grexit would give them all the tools, plus the political legitimacy, to go their own ways. Thus the Grexit is an appealing policy option, after all. It opens the prospect of a Gerexit, a Nethexit, a Finexit, and so on, relegating the monstruous ECB to the dustbin of history.

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