The following is an email I received from Brian Malloy a director of HC financial advisors, a large independent financial firm west of the Shannon! What struck me about Brian’s thinking is that he is taking a cynical optimist view, that large countries will, cynically act to preserve themselves. Anyway I so enjoyed receiving something well thought out and argued from another advisor I asked Brian’s permission to publish it on my own website;

1) The Euro is not breaking up - realistically it was never breaking up !! The costs in financial and political terms were always such that it was never going to be allowed to happen.

2) Muddling through (the policy todate) was actually the right policy - given the diverse structures within the EU and the Eurozone. Without it there would have been no means of forcing "regime change" in the most exposed countries (Greece, Ireland, Spain, Portugal, Italy). Muddling through without a single massive solution meant that the market (and the threat of bankruptcy) was used to bring these countries to the current position - new govt. full acceptance of the need to get their fiscal house in order. IF the ECB had jumped in during 2010 how likely would massive austerity measures have been in places like Italy? Spain? Would Greece have continued to play fast with the truth?

3) Merkel (and Trichet) was 100% right - the ECB should NOT simply print money.

4) The time is right now for a big solution - but it needs to have market controls. The market is a cruel master and that is what is needed to keep countries in line (for everyone's long term good). The idea that the market drives countries out to the arms of the IMF (using ECB funding) is actually quite a good one. It takes the normal politics off the table and uses the strength of the IMF to force countries to sort them selves out (fiscally) whilst at the same time using the ECB to fund this (without it becoming an easy source of unlimited funds.

5) In that context the EU17 can announce that they will (over time) implement a model of centralised debt management (eurobonds could be a part of this or cross guaranteed debt etc). There will be rules attaching which will include areas such as 3 and 5 year budgets being submitted and reviewed. It may require treaty change but actually a "cleverer" idea would be to keep it out of the overall EU treaty and limit it to an MoU between the 17 countries - this could be ratified by Governments outwith a full treaty referendum. There would be acceptance that this would take time and that in the interim countries would need to move to a position of fiscal balance etc (stability and growth pact for slow learners !!). Some countries will struggle to achieve market support during this period and an immediate solution will be available to these in conjunction with (and under the auspices of) the IMF.

6) This solution is attractive because it ticks the boxes for the big guys - the big guys get the Euro stabilised (they need that at least as much if not more than anyone else) without the ECB becoming a printing press for the profligate countries. The Germans don't mind the carrots of printing money or centralising debt issuance PROVIDED that there is a big stick to enforce austerity and keep the countries fiscal position in balance. They know that having the EU police that is pointless (thats what got us here) but the IMF is a different matter. The smaller guys get euro stability and access to funds. The politicians get cover for implementing austerity - "do it or the IMF will come in" or (as we have here) "we have no choice - the IMF said we have to".

Anyway - just my thoughts on it Eddie

Here is the link to HC if you’d like to contact Brian Molloy and for the record I have no financial or personal links to him or his firm; http://www.hcgroup.ie/index.htm.