Germany’s Guide to Perfecting the Euro

The state of Europe’s current economic recession taints all promise for its future, its excellence, and its international prestige, as manufacturing in the EU has hit its lowest point since the previous eurozone crisis in October 2012 and is expected to stay this way for the rest of 2019. Although the euro, a common currency shaping the eurozone as a monetary union in which 19 of the 28 countries in the EU recognize the euro as its sole legal tender, was enacted as a means of promoting integration in both real and financial sectors, fundamental policy gaps between the ‘northern core’ and the Baltics negate the prospect of integration as a notion that solely promotes growth and progress but rather as an obstacle forcing European nations to formulate common, cooperative solutions that promote homogeneity. As a means of mitigating the crippling nature of the crisis on European welfare, the US Federal Reserve, the ECB, and other international banks funneled US dollars into European financial systems, which helped bolster economic activity within the continent by making American dollars more accessible outside of US stocks. Due to the volatile nature of increasing liquidity as a move that will potentially force the EU into back into another 2007-2008 financial crisis, policy experts’ question as to whether or not this investment should be recognized as a viable long-term solution under the belief that a solution of this caliber will only present a temporary fix to the underlying issue at hand. Currently, the European Central Bank (ECB) based in Frankfurt, Germany and the national banks of eurozone member states constitute the Eurosystem, in which the monetary policies of these countries are managed under an independent body. Homogeneity is achieved through the use of key mechanisms, such as the Stability and Growth Pact (SGP) and the Financial Services Action Plan (FSAP), outlining a number of rules and procedures member states are expected to adopt internally with the intent of facilitating the growth of the financial sector under the common currency regime.

The prospect of a common European currency was a central tenet of the 1992 Maastricht Treaty, which explicates certain criteria countries must follow to join the euro and laid the foundation for the creation of a ‘European’ institutional structure which acts to ensure the stability of the common currency in the international market. Shortly after things turned sour with the euro’s implementation, the EU proposed the ratification of the Fiscal Compact which promotes the concept of a ‘structural budget’ where its effects are not observable with calculations subject to consistent revision over time. In 2007 when the eurozone crisis was first emerging, 17 eurozone summit leaders met to agree on a second bailout for Greece in the hopes of preventing the debt crisis from consuming the whole of Europe’s economy. Three years later, the EU implemented the European Stability Mechanism with the intent issuing provisions to alleviate strenuous amounts of debt within debtor countries. The GA has also been involved in helping Europe mitigate the effects of the crisis in A/71/216, which enhances cooperation between the EU and the IMF, as well as transparency measures concerning economic reform. Even though we’ve come a long way since the euro was first introduced, there is still much to do to prevent the euro from plunging the EU into a prolonged economic recession.

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Germany is a leader in reforming labor markets and keeping unit labor costs in check, which is why we are at the forefront of efforts to mitigate the eurozone crisis. Germany is adamant about maintaining fiscal responsibility under the SGP, as the SGP provides a clear-cut framework for optimal integration of the euro and will thus enable us to minimize the number of crises that occur within the EU, such as the one that occurred in 2010 with Greece. In Germany, federal revenues and expenditures are controlled by federal laws, which accompany an extensive bailout system keeping our economy in check and minimizing the severity of shocks when they occur. Our nation has also adopted a universal banking system in which the Federal Financial Supervisory Authority (BaFin) acts as the main institution of financial regulation concerning the private sector and economic risk. Keeping this in mind, Germany proposes the implementation of the 2020 Eurozone Plan of Public Investment, a political union, a European debt reduction fund, and means by which we will be able to recapitalize banks through private and state injections.

Firstly, Germany proposes the implementation of the 2020 Eurozone Plan of Public Investment, which will make the countries themselves accountable for how they choose to invest their capital. Doing so will make much more sense than simply relying on the ECB to impose ‘stronger’ mechanisms that regulate this facet of the economy while still allowing for full transparency on sovereign debt exposures. In our framework, the ECB will first tabulate who owes what to whom, which will require each country in the eurozone to submit an account of their current income and expenditures. Our choice in making the ECB regulate these finances as opposed to formulating legislation is fitting in the sense that the purpose of the ECB was always to manage monetary protocols as an independent body. This will also require a neutral, non-member state, preferably the Swiss, to further assess each country’s situation as to confirm the assessments made by the ECB from an objective standpoint. Upon retrieving the final draft of these assessments, we will then issue means, such as the removal of public investment in national budgets (and therefore measured deficits), to keep expenses at bay. If we were to follow this route, in particular, we will give the European Investment Bank (EIB) a central role in public investment financing in which struggling nations will be able to lease new infrastructure investments and gradually reimburse the EIB through a user fee that covers interest rates over time. Doing so will improve governance in their respective economies by minimizing austerity measures in the cutting of investments, thus improving the collective state of the eurozone in the long run.

As a stateless central bank within a bloc where national governments retain fiscal sovereignty, however, the ECB has very few tools with which they will be able to use to pressure governments to pursue economic policies that are consistent with its inflation target. The lack of governance of both fiscal and monetary unions, especially with how some, if not most, nations blatantly ignore vital conventions, such as the ‘no bail-out’ clause, enshrined in EU treaties, requires some form of common, more centralized decision-making—a political union, perhaps—noting how the formation of policies concerning taxes, payments, and resource transfers involves excessive political commentary. Our political union will opt for the creation of a core Union inside the EU as a means of propelling genuine political integration, as well as effective governance of economic infrastructure and foreign affairs, with full democratic accountability and parliamentary control.