2010 November 29 Monday
Germany Debates Euro Break-Up

Occasionally the unthinkable becomes thinkable.

"What would really happen if the euro collapsed?" Jens Witte of Der Spiegel news magazine wrote. "Would it truly herald a return to the good old days to the much-revered deutsche mark?" Or might it lead instead, he asked, to an era of "chaos and economic depression?"

With more European countries going broke what now?

"The question 'what now?' has become the fundamental question at the heart of Europe," the conservative daily Die Welt wrote in a commentary Monday in which it passionately argued that the government would soon have little choice but to rethink the future of the single currency and its loyalty to the euro.

A Reuters analysis takes the possibility seriously.

Eventually one or more countries decide enough is enough and break away or are forced out, reintroducing the national currencies they used before tying their fate to Europe's audacious economic and monetary union.

Unthinkable only a few weeks ago, a small but growing number of experts now believe some version of this nightmare scenario could become a reality for the euro zone if policymakers fail to unite behind a more forceful strategy for saving the euro and address investor concerns about fiscal and economic imbalances.

Imagine the alternative: All the Euro zone countries remain in the Euro. I do not see how they can do that without defaulting on some of their debts. Can the Euro monetary union survive sovereign defaults by some of its members?

What I haven't seen discussed yet: A return to a couple dozen currencies does not make sense. So should the Euro zone break into 2 or 3 zones? Or will the break-up be too sudden and chaotic to allow that to happen? Germany was the obvious core of the Euro and could form the core of a currency union that would also include the Netherlands, Austria, and a few other countries. But which country could serve as an alternative core for a Euro 2 currency? Would France break away with Italy and Spain? Or would France stay in a union with Germany?

European governments and business elites have a lot emotionally, intellectually, and in reputation invested in the Euro. They won't give it up easily. But if Peak Oil hits hard as I expect in the next 10 years then the financial conditions of the weakest Euro members will become so bad that the only way the Euro zone will be able to stay intact will be with debt default and restructuring by some Euro zone members.

Share |      By Randall Parker at 2010 November 29 09:37 PM  Europe Monetary Union

Thomas said at November 30, 2010 3:04 AM:

I really don't think this break-up will happen. The elites investment in the project is one reason. But even without that, the sharply appreciating new currency would be highly disruptive for the export oriented german industry. No one in power would wanna be responsible for that. Then there's long term geopolitics to consider. Always better to be many than to be few. Especially with big daddy US in decline and all that.
WAY more attractive for our beloved eurocrats is a stronger political union and less national sovereignty. This is a stated goal anyway and the current crisis is the perfect pretext to push this through ahead of schedule. The few hundred billion it will cost are just the cost of doing business and compared to a good old war it really is an empire on the cheap. I for one have nothing but admiration for how beautiful the execution is.

A.Prole said at November 30, 2010 6:51 AM:

The euro is purely and simply a political currency designed for purely political reasons - it has absolutely nothing wahtsoever to do with rationality (intellectual or economic), therefore it is bound to collapse catastrophically sooner or later.
It is and was a vanity project pushed forward by insuffereably pompous and shallow politicians using the profoundly undemocratic and unrepresentative totalitarian dictatorship of the EU's command structures to force it on the 'peasants'.
The euro and its attendent preparations forced 30 years of economic stagnation on Europe in its initial set-up - incidentally the low birth rates engendered by that stagnation WILL ensure the death of Europe in the most meaningful way, ironically.
Its collape will cause more tears.
A thoroughly wicked, evil and stupid, stupid idea.But alas, it's all the result of political vannity THE most destructive force in the univers.
Only massive, uncontrolled non-white immigration into Europe #another elitist idea# is even more wicked and evil.

fbj said at November 30, 2010 2:30 PM:

I live in non-euro Sweden so....GO GO GERMANY, BRING IT ON!

HK said at November 30, 2010 3:56 PM:

"But even without that, the sharply appreciating new currency would be highly disruptive for the export oriented german industry. No one in power would wanna be responsible for that

Germany won't sell anything...

Mike said at December 3, 2010 5:51 PM:

The recent problems with the Eurozone have largely come about by trying to combine the rich north with the less industrialised southern and eastern European states. When the EU was smaller it worked a lot better. It seems likely there will be a downsizing rather than a complete break-up.

The eurozone will probably shrink back to it original core states of Germany, France, Austria and the low countries, with perhaps Italy and Hungary staying in from among the southern and eastern states. Countries like Greece and Portugal which rely heavily on tourism from the other EU states would be better off outside it.

Having the odd economically weaker state in the Eurozone benefits Germany in terms of helping keep the Euro lower, but having numerous weaker states means the Germany and the other strong states will be constantly having to bail out weaker economies.

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