Continued From Part I
So how then do we begin to solve the crisis? In the face of large scale problems, what the Eurozone needs is a complete overhaul of its central banking framework, combined with across the board reductions in sales and income tax rates.
To create a more resolute, efficient, and flexible central banking system, the European Central Bank must be legally positioned as the “lender of last resort” for the Euro, offering a guarantee that Europe’s national central banks will never go undercapitalized long enough to default on their obligations. Then, it should become the sole issuer of bonds for the Eurozone as a whole, such that national central banks will no longer be allowed to borrow on behalf of their respective nations and the European Central Bank can retain its sole authority to regulate the money supply.
Thirdly, the ECB should facilitate the creation of new Eurobonds that represent the debt obligations of the Eurozone nations as a whole, such that it could exercise its power as the sole regulator of the money supply to issue bonds on an individual nation's behalf,. allowing it to monitor the debt incurred by any one country more directly, as well as assuring member states that any one national central bank cannot cause direct harm to the creditworthiness of another. Lastly, the European Central Bank should no longer derive its working capital from national central banks in its jurisdiction, but instead should directly capitalize these banks in an amount relative to their economic weight in the Eurozone plus additional funds to insure no less than 20 percent of the total value of all consumer deposits in a nation's commercial banks.
National central banks will lose their ability to issue bonds and will not gain authority to raise inflation. Instead, they should be prompted to establish greater separation between their nation’s commercial and investment banks. Additionally, they should be charged with keeping detailed financial records of government expenditures, applying working capital from the ECB to partially guarantee consumer deposits, providing emergency liquidity for troubled financial firms, and short term low interest loans for private sector industries. Lastly, national central banks will be responsible for setting, enforcing, and maintaining specific capital requirements and leverage limitations for investment banking firms in their jurisdiction to guard against undercapitalization in those sectors.
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