The euro zone has gone from the emergency room to rehab. As often with patients, the question is how to maintain a stiff exercise regime now the immediate danger is over.
Germany has an idea. At December’s summit, it got the rest of the zone to agree in principle to what are called “partnerships for growth, jobs and competitiveness”. The idea is that governments will sign contracts committing them to do things like reform their labour markets, liberalise product markets and improve the efficiency of their public sectors. Countries such as Greece and Cyprus, which are already in bailout programmes, wouldn’t be covered.
The snag is that the leaders haven’t yet been able to agree on what sort of carrot to give countries in return for signing these contracts. They have, though, set an October deadline to reach conclusions.
One option would be to dust off an idea that was doing the rounds at the peak of the euro crisis two years ago: get countries with low interest rates to give some of the benefit they get from cheap money to those with relatively high financing costs.
Here’s how such a scheme, call it “euro-rates”, could work. At the end of each year, the euro zone would work out the average cost of all the bonds issued by participants in the scheme during that year. There would then be a transfer of cash from those who had borrowed cheaply to those who had borrowed expensively. The transfer would be designed to cut but not eliminate the divergence between different countries’ borrowing costs.