The euro zone as we know it must end or be radically reformed. Current mechanisms being used to manage the euro crisis are inadequate at every level. And as Cyprus shows us, the euro-zone crisis is far from over.

In new research from the Institute of Economic Affairs, The Euro: The Beginning, the Middle … and the End?, leading economists in this field, analyse the problems with the current approach being taken to resolve the euro zone crisis and argue:

• Product and labour markets in euro-zone member states are far too rigid to respond adequately to economic shocks. The result has been high unemployment and prolonged recession in a number of euro-zone countries.


• The EU must therefore face up to the inadequacies of its policies both in terms of the long-term structural errors in policy and of the short-term management of the euro-zone crisis.


• There should not be a debt union of any form. Governments must be responsible for servicing their debts without bailouts.


• Euro-zone countries must deregulate their labour markets and reduce government spending. Decentralisation and the promotion of a market economy must be at the heart of EU policy.

The report outlines several options for radical reform of monetary arrangements within the euro zone, including:

• A complete and orderly break-up of the euro and a return to national currencies combined with the vigorous pursuit of free trade policies.


• The suspension of Greece, and possibly other failing euro members, from all the decision-making mechanisms of the euro. These countries could then re-establish their own national currency to run in parallel with the euro. Both would be legal tender currencies with free exchange rates. Such an approach should be part of a more general agenda for decentralisation in the EU. This proposal mirrors the “hard ecu” proposal of the UK government before the euro was adopted as a single currency.


• The enforcement of strict rules relating to government borrowing and debt that all member countries would have to meet. Member countries who did not obey the rules would not be able to take part in the decision-making mechanisms of the ECB. Furthermore, the ECB should play no part in underpinning the government debt of member countries.


• A system of liberalised free-banking within which businesses and individuals choose the currency they wish to use.

Commenting on the report, its editor, Prof. Philip Booth, said:

“Current policy in the euro zone is not resolving the crisis but postponing it. The EU elite must decide whether to abandon the euro or put it on permanent solid foundations. However, if the euro is maintained, there must be radical reform both of the currency and of the European Union more generally.” 

Notes to editors

To arrange an interview about the report please contact Stephanie Lis, Communications Officer, slis@iea.org.uk or 07766 221 268.

The full report, The Euro: The Beginning, the Middle … and the End? can be downloaded here.

The authors of the report are:

• Philip Booth, Institute of Economic Affairs and Cass Business School, City University


• Francisco Cabrillo, Complutense University, Madrid


• Juan E. Castaneda, University of Buckingham


• John Chown, Chown Dewhurst LLP


• Jamie Dannhauser, Lombard Street Research


• Kevin Dowd, Durham Business School


• Katja Hengstermann, Institute of Finance and Economics at ESB Business School, Reutlingen


• Bodo Herzog, Institute of Finance and Economics at ESB Business School, Reutlingen University Andrew Lilico, Europe Economics and Institute of Economic Affairs


• Patrick Minford, Cardiff Business School, Cardiff University


• Neil Record, Nuffield College, Oxford, and Institute of Economic Affairs


• Pedro Schwartz, Universidad CEU San Pablo, Madrid

The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems.

The IEA is a registered educational charity and independent of all political parties.