The University of Southampton
University of Southampton Institutional Repository

How to end the European crisis – at no further cost and without the need for political changes

Werner, Richard A. (2012) How to end the European crisis – at no further cost and without the need for political changes , Southampton, GB University of Southampton 12pp. (Centre for Banking, Finance and Sustainable Development Policy Discussion Paper, 2-12).

Record type: Monograph (Discussion Paper)


There is a solution to the twin problem of large non-performing loans in the banking systems and the funding crisis for sovereign borrowers that is affecting especially Spain, Portugal, Ireland, Cyprus, Greece, but to some extent also Italy and other countries. The needed policies constitute ‘true quantitative easing’: as argued in 1994 and 1995 in Japan, there is no need for a recession due to the bad debt problems in the banking system. Necessary and sufficient condition for a recovery is an expansion in credit creation – which was originally called ‘quantitative easing’, an expression that was later used by central banks to refer to the type of traditional monetarist policy (bank reserve expansion) that was not likely to be sufficient.
True quantitative easing can be achieved quickly and without extra costs in a two-part process as follows:

1. The central bank purchases all actual and likely non-performing assets from the banks at face value (book value) and transfers them to its balance sheet. In the case of non-securitised loans, if needed a law should be passed to allow compulsory purchase by and reassignment to the central bank.

2. The government stops the issuance of government bonds. Instead, it funds any future borrowing requirement (including all scheduled ‘roll-overs’ of bonds) by entering into loan contracts with the domestic banks, borrowing at the much lower prime rate. Ideally, these two measures are combined, and part and parcel of a larger policy package. For a fuller list of measures, see our CBFSD Discussion Paper No. 1-12. But they can also be implemented separately, so if ECB and national central bank support cannot be gained for measure 1, national governments can end the negative vicious cycle and end their sovereign debt problems by going ahead on their own with part 2.

PDF CBFSD 2-12 Werner Euro Solution 26 Jul 2012 revised.pdf - Author's Original
Download (123kB)

More information

Published date: 31 July 2012
Keywords: eurozone crisis, European sovereign debt crisis, European crisis, solution to banking crisis, solution to financial crisis
Organisations: Centre for Digital, Interactive & Data Driven Marketing


Local EPrints ID: 341650
PURE UUID: 80202bdf-f680-44ab-be95-f2e4394f6b35

Catalogue record

Date deposited: 01 Aug 2012 11:25
Last modified: 18 Jul 2017 05:33

Export record

Download statistics

Downloads from ePrints over the past year. Other digital versions may also be available to download e.g. from the publisher's website.

View more statistics

Atom RSS 1.0 RSS 2.0

Contact ePrints Soton:

ePrints Soton supports OAI 2.0 with a base URL of

This repository has been built using EPrints software, developed at the University of Southampton, but available to everyone to use.

We use cookies to ensure that we give you the best experience on our website. If you continue without changing your settings, we will assume that you are happy to receive cookies on the University of Southampton website.