Angela Merkel wants unemployed Europeans to move, this after Paul Krugman pointed out the dangers that this has within a currency union in the absence of fiscal integration. A country gets into trouble: recession and high unemployment leads to budget deficits and a run up in the government debt levels. If the population then leaves to work elsewhere there will be no-one to restore the fiscal balance and, ultimately, repay this debt. Can currency unions actually work then?
How about this for an idea: the central bank guarantees a level of nominal GDP growth at the level of the whole union. States within the union issue bonds denominated in the currency of the union, but indexed to their own relative level of nominal GDP - the level of which is not guaranteed. This means that if bonds are issued to cover recession induced deficits but the young then emigrate, the level of the debt will be written down in respect of the relative fall in nominal GDP.
The only issue I can see is ensuring the objectivity of the entity which reports the relative level of the nominal GDPs of the countries within the union.
Related: the more I think about it, the less convinced I am about a Sterling Zone for a post independence Scotland. I'm becoming more pro Eurozone again - it's a much more symmetric grouping of countries, and to first order it is, like the USA, a closed economy. But there are all sorts of reforms needed: hence the ideas!
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