Conference Paper

This paper critically assesses the widely used projections of the EU and appropriateness of different budgetary strategies in order to sustain the fiscal balances and stability of the Euro. This paper suggests that there are three possible solutions for “rescuing” the Euro. First, for the EU to continue with the strong enforcement of the rescue scheme. This is a serious step, having in mind that the burden of adjustment of the budget deficit will be inherited in future generations. Countries need to achieve higher rates of growth and stability in the medium term in order to cover today’s losses. Second, elimination of the countries which are not in compliance with the Maastricht rules. If the countries stay, they won’t have control over their monetary policies. If they leave the Euro zone, that will lead to an increase of the interest rates on a higher level than today. Either their citizens will face large declines in their living standards as their currency falls against the Euro or they will be demanding larger increases in wage that will lead to high inflation. There are two sides of the solution, and neither of them is easy. Third, exit of Germany from the Euro zone or the division of the Euro zone into two sub-regions (one with a strong currency and the other one with an adjustable exchange rate). All the solutions are in favor of further sustainability of the Euro. But in modern