Smarter Than a 10 Year Old? Try Solving Euro Zone Crisis
Staff Writer, CNBC.com
Some of the greatest and best-educated brains in the euro zone have pondered the question: how would you break up the euro zone? Only one – a boy from the Netherlands who was just 10 when he wrote his solution to a Greek exit from the euro zone – has got a prize for his opinion so far.
Jurre Hermans has been given 100 euros ($133) for his proposal, which came with a picture illustrating how to make sure that Greeks bring all their euros to Greek banks in the event of a move back to the drachma.
Five more senior economists have been shortlisted for the £250,000 Wolfson Economics Prize, offered by Lord Wolfson, the chief executive of UK high street retailer Next. Their proposals have been published on the prize's website, along with Hermans'.
Euro zone policymakers have been working frantically to ensure that the solutions will never be needed in recent months.
The prize is the most valuable for any economist apart from the Nobel – and those who are shortlisted will get £10,000.
They include well-known eurosceptic and Capital Economics founder Roger Bootle and the rest of the Capital Economics team, Jens Nordvig and Nick Firoozye of Nomura’s currency team, private investor Cathy Dobbs, Jonathan Tepper, chief editor of Variant Perception, and Neil Record, founder of Record Currency Management.
The proposed solutions range from allowing peripheral countries which leave the euro to redenominate their debt in their new currency, the idea put forward by Bootle, to dissolving the entire currency if one country exits, proposed by Record.
Dobbs argues that the euro should disappear, with those holding euros replacing them with claims on the new currencies, according to a set proportion.
Vetter points out that a collapse of the currency would not necessarily lead to financial disaster, while Nordvig and Firoozye take on the issue foreign law debt contracts – currently worth around €10 trillion. They suggest creating a second European Currency Unit for sovereign debt which falls under laws from outside the country, and redenominating the debt which falls under local law into a new currency.
Hermans’ solution argues: “The Greek people do not want to exchange their Euro's for Drachmes (sic) because they know that this Drachme will lose its value dramatically. They try to keep or hide their Euro's. They know that if they wait a while they will get more Drachmes. So if a Greek man tries to keep his Euros (or bring his euros to a bank in another country like Holland or Germany) and it is discovered, he gets a penalty just as high or double as the whole amount in euros he tried to hide!!! In this way I ensure that all Greeks bring their euros to a greek bank and so the greek government can pay back all the debts.”