Euro break-up plan award offered by Lord Wolfson
- 19 October 2011
- From the section Business
A UK businessman is offering a £250,000 prize for the best plan to manage one or more countries abandoning the euro currency.
The award is being sponsored by Lord Wolfson, the chief executive of Next, the High Street retailer, and a Conservative party donor.
The process will be managed by the Policy Exchange think tank.
The body is sending out application packs to leading economists around the world.
The prize is described as the second biggest cash prize to be awarded to an academic economist after the Nobel Prize.
However, Lord Wolfson told the BBC that the competition was open to everyone.
"I think there is a very real possibility that the euro may collapse, and if that happens then it needs to be managed, and if it's not managed then it's going to be catastrophic for European finances, and not just for European finances," he said.
"The knock-on effects for the world banking system would also be very very serious."
Lord Wolfson says submissions must include answers to the following questions:
- How to ensure that any new currencies would be stable?
- What areas should the new currencies cover?
- What currency would government debt be paid back in?
- What happens to individuals' debts?
He said the last of the problems may be the hardest to solve.
"Let's say you live in Greece and your wages are changed into new drachma, and your mortgage with a Spanish bank is in euros", he said.
"The question is, do you have to pay that back in euros or does it change to being paid in the new currency?"
Lord Wolfson says it is not inevitable that the single currency bloc will break up. However, he warns that trying to "muddle through" is likely to be expensive.
He adds that any bailout would fail to address the problem that countries cannot devalue within the monetary union, something he blames for pushing up Greece's unemployment rate to 16.5%.
"Greek wages have risen by 30% relative to German wages in the last 10 years," Lord Wolfson said.
"What would normally happen is that their currency would devalue by the same amount. Because it hasn't, you have a situation where Greece is structurally uncompetitive."
The deadline for submissions has been set as 31 January, 2012.