Included in these suggestions are a joint European bond and a tax that could back up such a bond.
“I think some kind of [joint] euro bond and some kind of European-wide fiscal authority will have to be part of any solution that is really stable,” Sims said.
He added that convincing the European Central Bank to become the lender of last resort would help the struggling European economy despite the bank’s reluctance to do so.
“[These] reforms don’t necessarily have to come right away. What has to come right away is recognition that things are moving in that direction, that there is good will and understanding of the need to compromise,” Sims said. “If that doesn’t begin to emerge, then I think countries will want to start to leave. Once two countries have done it, I think the whole system becomes unstable.”
USA Today reported that Sims was one of the few economists to predict the European financial crisis — in 2002 with a paper titled, “The Precarious Fiscal Foundations of EMU (European Monetary Union).”
Sims received the 2011 Nobel Memorial Prize in Economic Sciences in October.
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