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The solution lies in accepting inflation and the creation of a Europe-wide Nama, writes John Teeling

Like the emperor's clothes, the answers to Europe's problems are known but no one will accept them -- at the moment. But I do not believe that fiscal integration is the answer. I have to admit that I don't know what is going to happen in Europe but people should be aware.

A possible solution is as follows:

1. Create a massive European-wide bank, or Nama Mor, which takes on all of the European banks bad debts. This agency issues bonds -- call them eurobonds, namabonds, anything you like. They have a coupon and a very long term -- 30 years. Trillions of euro have been lost. They are gone forever. The losses must be realised before we can move on.

2. Pump money into the euro economy. Cause inflation. Inflation wipes out debt over time. Now it may well be that Nama Mor automatically creates credit by buying everything.

3. Figure out a way to allow a devaluation of the euro in the weaker countries. This is the "euro lite" idea. Difficult, but not impossible. It would make these economies productive. Alternatively, revalue the German euro.

The above will happen but not yet. The euro will limp on, facing more and more crises until eventually there is either a collapse or a serious restructuring.

I should set out my stall. I am a nationalist, I want to be Irish first and European second. The ultimate purpose of the European movement is political union. A United States of Europe is the goal. You cannot have a United States of Anything without a common currency. For a common economic policy to work, you must have one authority setting monetary policies on credit and interest rates and a central authority deciding taxation and general economic policy. You only have to look at the economic debacle in Europe in recent years where a single monetary policy of cheap available credit led to wild exuberance. There was no authority to rein in the exuberance by tightening taxation or controlling spending.

Anyway, I do not believe that full political union will happen. Thousands of years of often bloody, divisive history, ethnicity, religion, social customs and other factors persuade me that a United States of Europe will not happen. History supports this view. Attempts to turn economic unions into political unions have consistently failed. But I believe that bureaucrats will try to force it.

The euro was a major step along this road. It was clear to many observers in the Nineties that a common currency could not work. The belief among eurocrats and their economic advisors was that an economic union would lead to convergence among the different economies so that ultimately a political union would be easier to implement. This happened to some extent, but the divergence is too great.

The lack of a central fiscal authority meant that individual governments, like the children of rich parents, could spend without the necessity of earning the money. They could always borrow from the seemingly limitless pool of money available at lower and lower cost. The economically weaker members of the eurozone did just that. The resulting carnage is there for all to see. The cure, economic chemotherapy called austerity, kills the bad practices, but can, as with chemotherapy, also kill the patient.

But the economic doctors of Europe want to make sure that the future economic lifestyle of Europe conforms to best practice -- ie German. This means an "economic diet". But as David McWilliams recently said, putting an anorexic on a diet to help her put on weight makes no sense. Eurocrats have succeeded in persuading ignorant politicians and frightened civil servants that a financial starvation diet is the only way forward -- hence the fiscal treaty which threatens law on the lax Irish, Greeks, Spaniards, et al.

But they know, and we know, that the threat of law is not enough

so they want to move fiscal policy decisions to Brussels/Frankfurt. Tax harmonisation will be the first objective. This means among other things that our sacred 12.5 per cent corporate tax rate will be at the discretion of EU bureaucrats. This is a fact, not a scare tactic. If you believe for one minute that German/Dutch/French law-makers will continue to allow their companies to avoid billions in tax by using brass-plate operations in Dublin, then you deserve what you get. "Ah but," you say, "the politicians assure us." Exactly.

What will happen if there is an attempt at fiscal integration? Fiscal integration will be the same as absentee landlords. Exemptions, delays, avoidance and downright evasion will ruin the initiative. If the Greeks will not pay taxes to their own countrymen, they will hardly pay their German overlords. Will it be different in Ireland? Those of us who were taught Irish history, as gaeilge, by "the Brothers", will remember how it was a matter of national pride to avoid paying anything to absentee landlords. That will happen again. The housing tax is a portent of what might come.

Fiscal integration will mirror what always happens when there are rich and poor sections of one economy. Wealth will flow from the rich northern EU to the poor peripheral EU. So the indolent Greeks, siesta Spanish and partying Irish can expect the German taxpayer to continue to fund their lifestyle. I don't think that this is what is envisaged.

So if fiscal integration will not work, what will happen? The euro will struggle on for a while, then break up in some form. A managed break-up can be handled. But, I believe that there is a growing possibility of a disorderly break-up which could wreck the eurozone itself and cause a world recession. The Great Recession of 2007 could become the Second Great Depression. I have no faith at all in politicians or bureaucrats. History teaches us that when faced with critical decisions, they vacillate until it is too late. There is no powerful charismatic leader in Europe to bully the players along a path. Maybe we don't want one.

All it takes to cause a disorderly break-up is an "unknown unknown" -- an assassination in Europe or an economic collapse in China, something like that. The impact of a disorderly break-up is frightening. Probably every single bank in the eurozone will be insolvent -- including German and French banks. In 2002 in Buenos Aires, I watched frightened middle-class Argentinians banging on the closed doors of the banks pleading for their money. It was gone. Years later, they got a few pesos in compensation.

A disorderly euro break-up will place almost impossible strains on the European Union. The strong members may choose to exit rather than throwing out the weaker ones. As economies shrink, unemployment will rise. Millions upon millions of unemployed young people will look with disgust at the impotent politicians and will consider radical solutions.

The above is highly unlikely to happen. But "highly unlikely" does not mean "certain not to". Hence my suggestions. A Nama Mor and namabonds will give a big breathing space but the trillions of debts must be eliminated. Inflation will solve this. The EU has had a great run. Maybe it will become a political union. History says no.

While I don't think that an economic nightmare is likely, it might be no harm to prepare for one by putting any liquid assets you might have into US dollars in the top US banks.

John Teeling is chairman of 162 Group and founder of Cooley Distillery

Sunday Independent