1. + Free Market Road Show Madrid, June 17 th, 2013 “Is more Europe better Europe?” P. Schwartz “Single currency versus common currency” “Is there an alternative to the Troika?”

2. + The € as politics The crisis of the euro has thrown doubt on Jean Monnet method to foster European Unity The path of spontaneous economic cooperation abandoned Economics and the € as a political instrument to foster European unity The € is instead it is increasing tensions among euro-members and heightening the feeling of a democratic deficit

3. + Mundell conditions for a legal tender money The Stability and Growth Pact (1997) Applies Maastricht conditions to existing members Deficit < 3% GDP Sovereign debt < 60% GDP Later modified to suit France and Germany (2005) ECB rules Cannot lend to EC institution or member-states Must preserve the purchasing power of the currency ( self-imposed ΔP ≈ 2%) Real GDP growth not in its remit No bailing-out member-states

4. + How the € functioned in fact No single market and no convergence Foreign deficits not mentioned Target II and the finance of current BoP deficits No bailing out of member states disregarded No ECB financing of States and national banks flouted ECB engaged in countercyclical monetary policy

5. + The hard ECU, a parallel currency John Major’s ‘hard ecu’ in 1990: a common European currency instead of the single one defended by Jacques Delors. An electronic money to be used by business and tourists Initially, value equal to a basket of European currencies Could not subsequently have been devalued relative to any member currency. This would have made it as hard as the hardest member currency.

6. + Two Currencies in Cyprus Cyprus residents obliged to use two currencies: the German € and the local € The fixed exchange rate between the two is defended by capital controls and limits on bank account disposal With a flexible exchange rate between the free € and the stamped € no need for controls All payments between residents in stamped €

7. + The ECB & national central banks with parallel currencies The ECB will be able to follow an orthodox monetary polity regardless of public deficits and private leveraging National central banks will finance national States at their own risk Danger of the local currency becoming small change The € a choice currency shaming profligate national states National States in crisis will be able to devalue Devaluation a form of austerity

8. + www.pedroschwartz.com Rafael del Pino Research Professor