Currency wars, extra-national stimulus and Krugmania!: 5 best unusual solutions to the eurozone crisis

Five unusual solutions to the eurozone crisis, just in case you're bored of the ones that might actually happen.

1. The US and UK should engage in a currency war with the EU.

The problem the eurozone has is that European Central Bank president Mario Draghi is fashioning himself as the man with a carrot and stick. He knows that monetary policy can't solve all of the area's problems, and that national governments need to step up and do something to help the situation. Sadly, the policy he wants is more fiscal integration, which most countries are terrified of.

If European governments fall in line, then Draghi would be likely to implement the monetary easing which could really help the continent. Unfortunately, given the integration he demands is not forthcoming (because Germany is terrified of taking on Spain's debt and Spain is terrified of being a vassal state to Germany), it doesn't seem like the ECB is going to make any positive moves in the short term, instead choosing to futilely dangle the carrot a bit longer.

So what is to be done? Well, a worldwide crisis needs a worldwide solution. The Federal Reserve or the Bank of England could unilaterally start buying up euros. Matt Yglesias writes:

If the ECB just sat back and relaxed, that would make Europe's problems even worse. But the most likely scenario would be massive retaliation by the ECB and much-needed transatlantic monetary stimulus.

Of course, it's true that this solution counts on the ECB reacting in a non-insane manner, which has only occasionally been a good betting strategy.

2. If you like stimulus so much, why don't you live there?

If the rest of the world wants a solution which removes agency from the hands of the ECB and Mario Draghi entirely, then ex-Federal  reserve official Joseph Gagnon's suggestion, submitted to the Washington Post's WonkBlog, may work:

There are two other individuals who have the same power as Draghi to end the euro crisis: Ben Bernanke and Zhou Xiaochuan. The Fed could do the next QE3 entirely in Spanish and Italian bonds and it would not require a vote in Congress or Presidential approval. It would push the euro up against the dollar, but Europeans would not be in a position to complain. The People’s Bank of China is estimated to hold nearly 1 trillion euros already and it could switch them from German bonds to Spanish bonds.

In other words, rather than telling the Europeans to do some monetary stimulus, or attempting to force their hands with a currency war, the US or China could simply pump money into the European periphery. Normally, of course, if you're going to stimulate somewhere, you would rather it was your own country; but if you can stop a worldwide slump following the collapse of a massive currency bloc, that's a pretty good use of your time as well.

3. Krugmania!

A recent ING analysis (pdf) runs through six possible scenarios for the eurozone, including "Draghia" (where everyone gives in to Draghi, makes a banking union, and he does fiscal stimulus), "Inflationia" (sort of the Eurozone voluntarily doing what is described in point one) and "Bondia" (Europe introduces "eurobonds", all the countries pooling their costs of borrowing).

But if we're looking at unlikely solutions, then their sixth scenario, "Krugmania", fits the bill. It calls for lots of fiscal stimulus, mainly used for public investment, and the ECB not raising interest rates every time inflation peaks. If matched with a commitment to reducing deficits over the long term only, ING see this plan adding 3 per cent to GDP and 2 per cent to employment throughout the eurozone over the next two years.

4. Greece defaults but doesn't exit

John Cochrane, a professor at the University of Chicago, is annoyed that Greece defaulting on its debt is always spoken of in conjunction with a Grexit:

The two steps are completely separate. If Illinois defaults on its bonds, it does not have to leave the dollar zone -- and it would be an obvious disaster for it to do so.

It is precisely the doublespeak confusion of sovereign default with breaking up a currency union which is causing a lot of the run.

But the main reason why default is spoken of is that doing so allows Grexit, which allows devaluation and a recovery in exports. Cochrane suggests that it be viewed another way:

They need to say they will tolerate sovereign default, bank failures, and drastic cuts in government payments rather than breakup.

Yes, cuts. The question for Greece is not whether it will cut payments. Stimulus is off the table, unless the Germans feel like paying for it, which they don't. The question for Greece is whether, having promised 10 euros, it will pay 10 devalued drachmas or 5 actual euros. The supposed benefit of euro exit and swift devaluation is the belief that people will be fooled that the 10 Drachmas are not a "cut" like the 5 euros would be. Good luck with that.

In other words, rather than defaulting in order to exit, default in order to avoid the exit. In this scenario, Greece is a sort of sacrificial lamb; they're damned if they do, or damned if they don't, but the rest of the eurozone is only damned one way. If they take the cuts and stay in the currency, maybe Spain and Portugal can be saved, at least.

5. Pan-european austerity

Actually, maybe not. Yeah, probably wouldn't work. No, not even for Estonia, despite what the President says. Especially given the "there's no money left" argument doesn't really work when people are paying Germany to take their euros.

Pictured: A Currency War. Maybe. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Photo: Getty
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The Prevent strategy needs a rethink, not a rebrand

A bad policy by any other name is still a bad policy.

Yesterday the Home Affairs Select Committee published its report on radicalization in the UK. While the focus of the coverage has been on its claim that social media companies like Facebook, Twitter and YouTube are “consciously failing” to combat the promotion of terrorism and extremism, it also reported on Prevent. The report rightly engages with criticism of Prevent, acknowledging how it has affected the Muslim community and calling for it to become more transparent:

“The concerns about Prevent amongst the communities most affected by it must be addressed. Otherwise it will continue to be viewed with suspicion by many, and by some as “toxic”… The government must be more transparent about what it is doing on the Prevent strategy, including by publicising its engagement activities, and providing updates on outcomes, through an easily accessible online portal.”

While this acknowledgement is good news, it is hard to see how real change will occur. As I have written previously, as Prevent has become more entrenched in British society, it has also become more secretive. For example, in August 2013, I lodged FOI requests to designated Prevent priority areas, asking for the most up-to-date Prevent funding information, including what projects received funding and details of any project engaging specifically with far-right extremism. I lodged almost identical requests between 2008 and 2009, all of which were successful. All but one of the 2013 requests were denied.

This denial is significant. Before the 2011 review, the Prevent strategy distributed money to help local authorities fight violent extremism and in doing so identified priority areas based solely on demographics. Any local authority with a Muslim population of at least five per cent was automatically given Prevent funding. The 2011 review pledged to end this. It further promised to expand Prevent to include far-right extremism and stop its use in community cohesion projects. Through these FOI requests I was trying to find out whether or not the 2011 pledges had been met. But with the blanket denial of information, I was left in the dark.

It is telling that the report’s concerns with Prevent are not new and have in fact been highlighted in several reports by the same Home Affairs Select Committee, as well as numerous reports by NGOs. But nothing has changed. In fact, the only change proposed by the report is to give Prevent a new name: Engage. But the problem was never the name. Prevent relies on the premise that terrorism and extremism are inherently connected with Islam, and until this is changed, it will continue to be at best counter-productive, and at worst, deeply discriminatory.

In his evidence to the committee, David Anderson, the independent ombudsman of terrorism legislation, has called for an independent review of the Prevent strategy. This would be a start. However, more is required. What is needed is a radical new approach to counter-terrorism and counter-extremism, one that targets all forms of extremism and that does not stigmatise or stereotype those affected.

Such an approach has been pioneered in the Danish town of Aarhus. Faced with increased numbers of youngsters leaving Aarhus for Syria, police officers made it clear that those who had travelled to Syria were welcome to come home, where they would receive help with going back to school, finding a place to live and whatever else was necessary for them to find their way back to Danish society.  Known as the ‘Aarhus model’, this approach focuses on inclusion, mentorship and non-criminalisation. It is the opposite of Prevent, which has from its very start framed British Muslims as a particularly deviant suspect community.

We need to change the narrative of counter-terrorism in the UK, but a narrative is not changed by a new title. Just as a rose by any other name would smell as sweet, a bad policy by any other name is still a bad policy. While the Home Affairs Select Committee concern about Prevent is welcomed, real action is needed. This will involve actually engaging with the Muslim community, listening to their concerns and not dismissing them as misunderstandings. It will require serious investigation of the damages caused by new Prevent statutory duty, something which the report does acknowledge as a concern.  Finally, real action on Prevent in particular, but extremism in general, will require developing a wide-ranging counter-extremism strategy that directly engages with far-right extremism. This has been notably absent from today’s report, even though far-right extremism is on the rise. After all, far-right extremists make up half of all counter-radicalization referrals in Yorkshire, and 30 per cent of the caseload in the east Midlands.

It will also require changing the way we think about those who are radicalized. The Aarhus model proves that such a change is possible. Radicalization is indeed a real problem, one imagines it will be even more so considering the country’s flagship counter-radicalization strategy remains problematic and ineffective. In the end, Prevent may be renamed a thousand times, but unless real effort is put in actually changing the strategy, it will remain toxic. 

Dr Maria Norris works at London School of Economics and Political Science. She tweets as @MariaWNorris.