TMS, presented in 2010, is a comprehensive approach to the Euro-crisis, ….and is as well a ‘blue print’ for a bright and prosperous future of the Economic and Monetary Union (EMU), the Euro (zone) and all Euro-countries.
Within the existing EU-Treaty legal and economic framework of ‘Sustainable price-stability’, ‘Individual responsibility’, ‘No-bail-out’ and ‘Fair competition’, TMS concentrates on realizing 4 objectives:
A. Sustainable sound real economic growth, in all Euro countries
B. Solid and sustainable state finances in all Euro countries
C. A solid and stable financial system in the Euro zone
D. The Euro to finally become an reliable, stable, strong and lasting international currency.
The main achievements of TMS are:
- the ‘Euro Currency Units-Exchange rate Mechanism (ECU-ERM)’, and
- the ’European Bank for Bank Capital Support (EBBCS)’.
The ‘Euro Currency Units-Exchange rate Mechanism (ECU-ERM)’
The TMS core-concept introduces the ‘Euro-Currency-Units-Exchange-Rate-Mechanism (ECU-ERM)’ within the Euro Pact.
The ECU-ERM is an innovative (even scientific-economical revolutionary) but simple and ‘easy-to-implement’ exchange-rate-mechanism. ….A new ‘architecture’ for EMU and the Euro, especially designed, suitable and essential for the diverse and economically divergent Euro zone. ….It will turn the European Economical and Monetary Union (EMU) into an ‘flexible’ union. ….And therefore it repairs the primary flaw of the present ‘rigid’ Euro Pact.
The ECU-ERM is based on the ‘functions of money’ theory, and it separates the ‘means-of- payment’ function from the ‘currency-unit’ function of money. Payment can be done either physically (by cash money = legal tender) or electronically (by settling bank accounts). The currency-unit is the ‘unit of account’ for the determination of the level of prices and wages in a currency-area vis-a-vis that level in other currency-areas.
The ECU-ERM involves the introduction of new ‘National Currency-Units (NCU’s)’ alongside the already existing ‘Euro Currency-Unit (ECU)’. In full compliance with the EU-Treaty, the Euro (currency) can then remain the sole ‘means of payment (including legal tender)’ in all Euro countries .…and the ‘symbol’ of the post-war European unity.
The ECU-ERM introduces the ‘ECB-managed’ national monetary policies within the Euro Zone, and thus finally provides the urgently needed structure for ‘monetary devaluations’ (fixed but adjustable exchange-rates) and ‘interest-rate-differentiation’ on a national (member state) level.
To secure democratic ‘checks & balances’ (legitimacy, transparency and control), the mandate on the basis the ECB will execute the ECU-ERM, the specific economic fundamentals which will be used for that purpose, the transparency of these processes and a control mechanism if the ECB should not execute this task properly should all be determined democratic and be incorporated in EU-legislature and in the statutes of the ECB.
The ECU-ERM: ‘The best of both worlds’
The ECU-ERM of TMS combines ‘the best of both worlds’.
First the ‘world’ of:
- The Euro being the single European currency (means of payment, including legal tender) as the symbol of the European ideal,
- The clear advantages of the Euro currency (means of payment, including legal tender) in daily practice,
- The Euro as an powerful international reserve currency, and
- Last but not least, the monetary ‘stability’ of the Euro as a single currency for all Euro countries.
And second the ‘world’ of:
- The clear advantages of the ‘flexibility’ of national monetary policies within the Euro Zone, via the urgently needed structure for ‘monetary devaluations’ and ‘interest-rate-differentiation’ on a national (member state) level.
The ECU-ERM probably will change and dominate the future of ‘monetary economics’ not only in
For instance because this model can be used in/for other currency areas, such as that of the
USA and the newly to establish currency
areas in Latin America (SUCRE) and in Africa.
The ECU-ERM model can as well be the ‘blueprint’ for a future ‘world currency’.
The ECU-ERM gives new dimension to Robert Mundell’s ‘OCA’ theory
Thus the ECU-ERM does not require the necessity of a ‘full political and fiscal union’ nor a ‘money transfer mechanism’ within the Euro Zone (to absorb asymmetric shocks) for EMU and the Euro to survive and succeed…..
….And this model therefore gives as well a new dimension to the classical ‘Optimal Currency Areas (OCA)’ theory, presented by Nobel laureate Robert Mundell in the 1960’s, concerning a successful and lasting monetary union.
The ECU-ERM model also perfectly fits the ‘E Puribus Unum’ (Out of Many One) principle on which the Euro is based, and as well the ‘In Varietate Concordia’ (United in Diversity) principle on which the ‘European Union (EU)’ has been founded.
The ECU-ERM model versus the ‘parallel currencies’ model
The introduction, according to the ECU-ERM, of ‘National Currency-Units (NCU’s)’ alongside the already existing ‘Euro-Currency-Unit (ECU)’ perhaps looks like but is NOT the same as introduction of ‘parallel currencies’ alongside the Euro.
There are clear and important advantages of the ‘parallel currency-units’ model of the ECU-ERM compared to the ‘parallel currencies’ model.
For a enumeration (with explanations) of these advantages: click here.
Democratic ‘checks & balances’
To secure democratic ‘checks & balances’ (democratic legitimacy, mandate, method, transparency and control/supervision), the ECU-ERM management by the ECB should satisfy the following criteria:
- The ECB should be independent of - and immune from - political influences.
- The ECB should execute the mechanism always after due consultation with the respective national central banks (which should be independent as well).
- The mandate should be democratically assigned to the ECB by European legislation supported by each and every national parliament. The mandate should be incorporated in the statutes of the ECB as well.
- This legislation (and therefore the adapted ECB statutes) should describe the respective ECB policies/targets (fair national exchange rates for fair competition and sensible national interest rates for sustainable price stability and solid economical development) and also the economic fundamentals (methods) used by the ECB to execute the mechanism. For these purposes the relevant OECD Main Economic Indicators (MEI) such as the relevant PPP’s could be used.
- The ECB should execute this mechanism objectively and transparently. So the ECB should properly clarify each and every decision and always refer to its mandate and the method.
- If the ECB fails to execute the mechanism properly (or promptly) or goes beyond its mandate, there should be a court (judge) for democratic control/supervision and correction.
The ’European Bank for Bank Capital Support (EBBCS)’
TMS also introduces a ‘smart’ (ECB-financed) bank union for the recapitalization of ‘troubled’ European system-banks in the last (European) stage. This to prevent bankruptcy of system-banks, thus to prevent destabilization of the financial system.
The ‘ECB-financed’ EBBCS is a smarter, fairer and ‘taxpayers’-money-saving’, thus better, alternative for the ‘ESM-financed’ model which the European political leaders in 2012 decide to implement.
The ‘TMS principle’ and other strategies based on monetary devaluations
Interestingly, the TMS principle of separating the legal tender (means-of-payment) function of money from the currency-unit (unit-of-account) function of money, can also be used for a swift, smooth, legal and successful implementation of ALL OTHER presented strategies to tackle the Euro (zone) crisis based on monetary devaluations. Because according to the EU-Treaty the Euro is the sole and only means of payment (including legal tender) in all Euro countries, all these strategies have the same main legal obstacle (hindrance): a EU Treaty change is required. And note that a Treaty change will take a very long time, time
Europe does not have anymore.
And here the TMS principle comes in. The TMS principle facilitates THE MISSING LINK , the legal ‘final touch, for all these strategies and facilitates them the necessary legal ‘final touch’.
This means, one way or another, that The
Matheo Solution (TMS) presents the ONLY way out of the Euro crisis!
Matheo Solution (2010) in full
TMS is much more than the ECU-ERM and the EBBCS.
As a comprehensive solution to the Euro crisis and a ‘blueprint’ for the future of EMU and the Euro, TMS features the following 10 points program:
1. Implementation of the ECB-managed ECU-ERM (Currency Innovation). National currencies are being re-introduced as ‘currency-units/units-of-account’ (= NCU’s) parallel to the currency-units (unit-of-account) of the EURO (= ECU). The Euro remains the sole means-of-payment (including legal tender) in all Euro countries. Monetary NCU-devaluations (fixed but adjustable exchange-rates) in the problem countries on the basis of the ‘economic fundamentals’ (such as PPP’s). All existing and new international (border crossing) debits/credits will continue to be nominated in ECU/Euro. All existing (*) and new national debits/credits will be nominated in the respective NCU. Interest rate differentiation on a national level.
(*) Initially (in 2010) Ten Dam suggested that all existing national debits/credits should remain nominated in ECU/Euro. However because of new insights (Lex Monetae) he changed his view and later (2013) he states that all existing national debits/credits will be nominated in NCU.
2. The national economies of troubled countries should be reformed under the supervision of the IMF (possibly in conjunction with the World Bank). Investment programs should be financed by (international) private parties and the European Investment Bank (EIB).
3. Under the supervision of the IMF, the unsustainable national State debts of the problem countries should be reduced to sustainable levels by means of ‘clean hair-cuts’ (‘IMF Insolvency Pact’ with ‘Controlled Defaults’). Emergency loans to problem countries will only be made by the IMF (with the financial support of non-euro zone countries).
4. The ECB continues to control the monetary policy of the Euro zone and determines and regulates the money supply according to the existing only Treaty norm concerning ‘Sustainable Price Stability’. Unsustainable private debts in the problem countries also have to be reduced to sustainable levels.
5. Strengthening of the SGP (‘debt-brake’ and creation of crisis buffers) and its re-enforcement (ultimum remedium: expulsion from the Euro zone, without necessarily having to leave the EU).
6. The introduction of ‘voluntary exit’ (‘Opt-out’), without necessarily leaving the European Union (EU) and therefore without rejection of (the rest of) the EU-Treaty, for Euro-countries that can not or will not comply to the Euro Pact rules concerning State debts, State budgets, Sustainable price stability (combating inflation) and economic performance.
7. The ‘No-bail-out’ clauses have to be maintained/ re-installed and - if necessary - strengthened. Euro-bonds will not be permitted.
8. Establishment of an 'ECB Safety-Net' for European (system) banks that will experience liquidity and capital problems. Liquidity support only to private banks which need liquidity and offer solid collateral. For the required recapitalization, a 3-step approach: First aim to attract private capital. If that is unavailable then consider (partial) nationalisation. And if that provides insufficient perspective a ‘Capital Safety-Net’ to rescue troubled system banks. For this purpose the ’European Bank for Bank Capital Support (EBBCS)’ should be established. It is effectively a capital support fund, which is to be financed by the ECB (ECB = ‘The Lender of Last Resort’ with unlimited means) and which secures the stability of the Euro zone financial system. The EBBCS provides capital to troubled banks, in exchange for shares. These shares will serve as collateral to the ECB. Because these finances are only used for capital support, there will not be an inflationary effect. As soon as these banks have recovered and can obtain sufficient capital normally, the temporary capital support will flow back to the EBBCS. And the EBBCS will repay the ECB loans.
9. Restructuring of the banking sector, in the sense that banks should serve the interests of citizens, enterprises, and governments. Risky ‘Investment-banking’ must be separated from the regular (public) banking functions. Exorbitant earnings, including the ridiculous ‘bonus culture’ causing the damaging focus on short-term profitability should be terminated. The European bank supervision will be assigned to the EBA (and thus be taken away from the ECB). The EBA will execute this task in consultation and in coordination with the respective existing national supervision authorities.
10. The immediate end to the European financial support for countries, and – via countries – for banks in trouble. An immediate end to the ‘ECB purchases’ of State bonds.
Additionally and referring to the views of Hans-Werner Sinn, the Euro zone also needs a properly designed and functioning Euro Money System (Target 2), with an regular annual settlement of the developed debit/credit positions between the participating members.