Sunday, August 26, 2012
Who should leave the eurozone?
In a recent issue of The Economist, a fictional "lost" memo to Angela Merkel is published which reveals contingency plans for the breakup of the euro. The memo considers two possible exit groups: 1. Greece alone, and 2. Greece, Portugal, Ireland, Cyprus, and Spain. The memo outlines how a currency exit could be accomplished and how much it would cost. The coffee mug stain is a nice touch.
The Economist (8-11-2012 ) "The Merkel memorandum"
This memo follows many of the suggestions presented in the winning submission for the 2012 Wolfson Economics Prize, "Leaving the Euro a Practical Guide" by lead author Roger Bootle. In the following interview, Bootle explains why he thinks the eurozone will break up. He goes a step further and argues that the eurozone should break up.
Bootle touches briefly on the possibility of France and Italy leaving the eurozone too, so that only northern countries are left. Many others have suggested that the northern countries in the eurozone (including Germany, Netherlands, and Finland) should form their own currency zone. Here is one such article.
NYT (6-26-2012) "To save the euro, (Germany should) leave it "
Discussion Questions for Students:
1. Which countries if any do you think should leave the eurozone?
2. How might a big devaluation of reinstated currencies in Greece, Portugal, Spain, and possibly Italy, affect your industry?
For the truly dedicated here is a link to the winner of the Wolfson Economics Prize MMXII:
"Leaving the Euro a Practical Guide" by Capital Economics, Lead author: Roger Bootle
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The articles from the NYT and the Economist, as well as the interview with Roger Bottle, describe at least four different Euro break-up scenarios: 1) Greece out; 2) Greece and other bail-out countries out; 3) Everyone except for Germany, Netherlands, Luxemburg and other net-payers out; 4) Germany out. I would certainly add option 5) everyone stays in. Just the fact that there are probably as many options to discuss as there are members in the Euro zone tells me that there is a lot of hot air being produced in discussing the various scenarios.
ReplyDeleteWhat many commentators don't discuss (Mr. Bottle included) is the fact that the Euro was introduced within a POLITICAL context (incidentally, Germans were not allowed to vote via referendum on the Euro introduction). Just yesterday, Angela Merkel reinforced her resolve to keep Greece in and prevent a Euro break-up, due to POLITICAL, not economic, reasons. Discussing what could have /should have been done in the 1990's, for example: starting the Euro with a core group of countries (GER, FR, Benelux, maybe Italy), does not add much value today, even though, incidentally, variations of this scenario come up periodically.
The European governments decided to start the European political integration via a monetary union in the hopes that a common currency would drive political integration. For Germany, this common currency was probably a good thing, since most of the German exports go into the Euro zone. This meant that many Irish, Italian and Portugese people could afford German cars and machinery. A German exit from the Euro, with a stronger D-Mark, would severely impact German exports globally - the main reason why I can't see this scenario happening. A Euro-exit by Greece or other, mostly southern, countries would be expensive for all the net-payers in the Euro, most prominently Germany. But there would also be the non-tangible cost of damaging the European vision if that scenario were to occur.
I still believe in the vision of a 'United Europe', so for me personally the monetary union has to be saved at (almost) all costs. I think that one consequence of a break-up would be that further political integration would be postponed perhaps indefinitely.
Where there is a will, there is a way. Unfortunately, there are only few European visionaries left with a will to drive the European idea, like Mitterand and Kohl did in the 1990's. I think that the absence of a VISION for Europe makes the current crisis worse.