We had a comment sent in to us recently from Alex, who suggested that the best solution to the ongoing European economic crisis would be to split the eurozone into two separate currencies, with the weaker Southern bloc being allowed to devalue and regain competitiveness as a result.

Whilst this would certainly be a radical move (and would, as Barry Eichengreen argues, present formidible technical and political challenges) it nevertheless has its champions. In fact, last year the British economist Roger Bootle was awarded the Wolfson Economics Prize (along with a cheque for £250,000) for a paper proposing exactly this solution.

Our commenter, Alex, argued that Northern European economies (and mindsets) are similar enough that closer political and economic integration could work:

I would prefer a Northern euro and a Southern euro. Within [the Northern eurozone] we could have full integration as… all the countries having AAA-status and their economies are pretty much at the same level.

We took this suggestion to the finance minister of a Northern European country to see whether they were at all sympathetic. The answer from Austria’s Minister of Finance, Maria Fekter, was not exactly supportive:

Not at all. The economic benefits of the euro increase with the size of euro area. Splitting-up Europe means less influence at the global level. There is no economic need for eurobonds, and I don’t see the European electorate going for that. We have learned that the economic union is well ahead of the political union and this does not work very well. Thus, we need to work on deeper political integration first.

We also had a comment sent in by Nikos from Greece, who believed it was only a matter of time until the crisis flared up again. He argued that further changes would be required to the structure of the Single Currency if it was to survive:

Its a matter of time until the crisis spreads all over Europe and all over the world. Austria and Finland produce, but Spain, Greece and Italy don’t buy their products any more. The euro is not designed to cope with situations like this. The euro must change or it will soon become a museum item.

Would Maria Fekter agree? Is the worst of the crisis over, or is there still more to come?

The downsizing of the over-leveraged economies is about to come to an end. Since competitiveness has improved I am confident that economic convergence will continue. But it is true that all EU Member States got country-specific recommendations, especially in terms of structural reforms, and they are well advised to implement those recommendations. To this end, we have strengthened the economic policy co-ordination in the euro area.

(Translation: The worst is hopefully over, but no, we can’t relax yet).

Next, we had a comment sent in from Paul from the UK, who wanted to know why Austria (along with 10 other eurozone countries) has decided to push ahead with a Financial Transactions Tax (FTT) even though it would potentially damage British interests.

Everyone realises that the UK has a somewhat negative attitude of the EU, so just how is the Financial Transactions Tax, which so blatantly discriminates against the UK, supposed to improve this animosity?

In fact, the FTT hit a stumbling block recently when lawyers advising the 11 participating eurozone states issued a legal opinion suggesting that the FTT would be incompatible with the EU Treaties (partly because it might infringe on the taxation powers of non-participating member states). But how would Maria Fekter, who has been a big supporter of the FTT, respond?

The European Commission’s proposal definitely does not discriminate against the UK. The proposed tax is based on the residence principle and the issuance principle. The UK stamp duty reserve tax is [already] based on the latter principle, thus it does not seem necessary to argue in favour of it. The residence principle ensures that all financial transactions where at least one party (individual, business or financial institution) is established within the participating Member States are covered. However, only financial institutions participating in this transaction are liable for the payment of the FTT. Therefore, it does not matter where the financial institution is established. Financial institutions established in one of the participating Member States are treated the same way as financial institutions established in third countries and non-participating EU Member States. Worldwide, all financial institutions are treated in exactly the same manner. It is true that UK does not receive any revenue from this tax, but it is its own choice not to take part in the enhanced cooperation in the area of a financial transaction tax.