A German exit from the euro could be relatively easy

By Anatole Kaletsky
June 27, 2012

The fundamental problem of the euro is widely seen as one of “herding cats” – the impossibility of coordinating complex policies among 17 discordant nations, each with different interests, traditions and ideas. This is not true. The dividing line in Europe is much simpler. On one side are France, Italy, Spain and every other significant country, backed by the U.S., Britain, the IMF, the European Commission and the leadership of the European Central Bank, proposing serious and complex technical solutions based on genuine fiscal federation, which means the sharing of national debts. On the other side is Germany, occasionally supported by Finland, Austria and Slovakia, always saying Nein!

Every new veto threat from Angela Merkel increases Germany’s embarrassing isolation, as Joschka Fischer, its former foreign minister, recently warned: “Germany destroyed itself – and the European order – twice in the 20th century. It would be tragic and ironic if a restored Germany … brought about the ruin of the European order a third time.” But if Germany’s role as spoiler is increasingly recognized, why don’t the other countries do what this column suggested last week: Tell Merkel to put up or shut up – either abide by majority decisions or leave the euro?

The standard answer is that Germany is the “paymaster” of Europe; so without Germany the euro zone would be “bankrupt”. Such metaphors are a lazy substitute for clear thinking. To see why, compare the consequences of Germany leaving with the Greek exit, which was described as “manageable” by European officials only a few weeks ago. German departure would be less disruptive than Grexit for three reasons.

First , a Greek devaluation would trigger capital flight from the next weakest country – Spain, then Italy and France. Germany would not create such domino effects. Once the Deutschemark was restored and revalued, there would not be a “next strongest” country to attract capital flight. Of course, some people might still send their money from Italy or France to Germany, to speculate on further revaluation, but that would be no different from investment flows out of Europe at present into dollars, pounds or Swiss francs.

Second, and most crucially, the euro zone would become a more credible and coherent unit without Germany. Liberated from German obstruction, the ECB would be able to follow the examples of the U.S., Japanese, British and Swiss central banks, using quantitative easing to bring down interest rates to zero at the short end and to around 2 percent on long-term bonds. Just as important, the euro governments could finally form a genuine fiscal union, using the entire fiscal capacity of the euro zone to back jointly guaranteed eurobonds. The euro zone could then be treated again as a single economic unit, comparable to the U.S., Japan or Britain – and in terms of key fiscal ratios it would score well. Public deficits in euroland ex Germany were 5.3 percent of GDP in 2011, according to the IMF, compared with roughly 9 percent in Britain and 10 percent in the U.S. and Japan. Gross debt (including financial bailouts) was 90.4 percent of GDP, against 98 percent, 103 percent and 205 percent in Britain, the U.S. and Japan, respectively. Trade deficits were much smaller than in Britain or the U.S. In short, euroland without Germany would be far from bankrupt – and the key reason for the euro crisis isn’t lack of competitiveness but Germany’s refusal to mutualize and monetize public debts.

Third, a euro break-up caused by Germany withdrawing would be far less chaotic from a legal standpoint than a break-down in which the euro disintegrated as weak countries were pushed out. The euro without Germany would remain a legal currency, governed by the same treaties as before. International contracts in euros would be legally unaffected, but simply devalued in terms of new German marks or dollars, just as British contracts were devalued when the pound fell from $2 to $1.40 from 2008 to 2009. Only contracts within Germany governed by German domestic law, for example retail bank deposits and wage deals, would be redenominated into marks. The German government would face no legal challenge if it decided to save money by repaying bonds in devalued euros (as specified in the contract) instead of converting them into marks (as speculative investors might hope).

None of this means that a German exit would be painless. German export companies would lose sales because of the strong mark. Most German banks would have to be recapitalized by the government, since their mark liabilities would not be matched by devalued assets in the euro zone. The Bundesbank would probably require the biggest recapitalization in history, since its loans to the Target2 clearing system run by the ECB (698 billion euros at the end of May and rapidly rising) would only be repaid in devalued euros.

But these would all be local difficulties for Germany, not existential threats for the whole of Europe. For the rest of Europe, a euro without Germany would be perfectly feasible and even attractive. Pressuring Germany to leave the euro therefore need not be an empty threat.

If European leaders can only make Merkel understand that she seriously risks exclusion from the euro, she may start to behave in a more cooperative way. In that case, the costs and benefits of actually expelling Germany will never have to be tested.

PHOTO: A man holding an umbrella in the colors of the European Union enters the  Chancellery in Berlin before talks between government and opposition leaders about the EU fiscal pact, June 21, 2012. REUTERS/Thomas Peter

 

51 comments

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I think we have the winner for this year’s Nobel Prize in Economics.

Posted by BradyW | Report as abusive

Wow superb analysis. Really brilliant, congratulations. You only missed one point, the EU project is far beyond the euro currency project. A German exit will not have consequences only on the currency but will clearly have major and grave political consequences with Germany and Germans de-commiting from the EU project. It would send earthquake waves across the globe affecting the entire geo-political balance. Russia would be one beneficiary of such strategic re-balancing.

So yeah, what you did was to analyze a subject without considering the major secondary political effects, effects that might well overcome the initial gains of a German exit from the common currency. Is Reuters actually paying you guys for these deep analyses you make?

Posted by Qeds | Report as abusive

its very naive to say that German exit from euro wont effect anything. infact whole europe economy is on the blessing of Germany. German exit will erase the body of europeon union. there is a greater need to stop corruption in greece, italy, spain and portugal. Germany is trying its level best morally and monetary wise to save euro.

Posted by 93shahidz | Report as abusive

“more credible and coherent”: 50% correct and 50% absolute ignorant answer.
More coherent yes, as countries with cheating cultures would be tied together, so in turn absolutely not credible.
Have you ever bought Italian bonds?
Come on, be honest!

Posted by motz1999 | Report as abusive

You are right about one thing. A German exit will immediately devalue the Euro. What you did not include is what happens next. The moment Euro is devalued, all Euro-denominated savings will also lose value, consumer spending will grind to a halt, credit market will freeze, followed by a major banking crisis. And since Germany is out, there will be no one left to bail out EU.

There is a reason why the French, Italians, Greeks, etc, still play ball with the Germans even now. If a German exit has so little impact, they would not have put up for so long.

Posted by epoxy | Report as abusive

Germany is the country with the greatest financial stability in the Euro-zone. This is because of its economic discipline and quality of its business environment. Now Germany is being painted as the bad guy by the countries who want it to fund their unsustainable economies. “Nein” is the right word for those countries and Germany has every right to demand compliance from its partners in exchange for being the EU financial corner stone.

Posted by triumph900 | Report as abusive

That is all reasonable enough, until you realize that no one can force Germany out of anything, except maybe a few soccer matches. There is no provision in the EU treaties providing for an exit from the Eurozone at all, which is part of the quandary. And Germany benefits from the exports to the other EU countries, which would of course be reduced if the euro loses value relative to the new DM, as it is bound to do.

So while it is probably true that Germany’s leaving is better than a collapse all around, there is still not much likelihood that a political consensus in Germany will build up to the point of actually doing it. That is especially true since years, and even decades of propaganda on behalf of the “EU Project” has most people believing that they actually need it. Old dreams die hard.

Posted by Jim1648 | Report as abusive

Same old topic from the same writer. A rehash of the old argument.

Let us assume that Germany leaves and the Euro is devalued. Inflation then jumps in the remaining countries. What is the consequence? Higher interest rates ala the USA and the UK in the ’80s? A massive dumping of Euro denominated bonds of “every other significant country”? Who then bears the brunt? The US? Britain? The IMF?

Every person is entitled to an opinion. Every proper self respecting journalist would avoid inflammatory language and disguised invective. If I were Dutch, I would be insulted by your suggestion that The Netherlands is not a significant country in Europe whereas Greece is.

It is obvious you dislike the Germans Mr Kaletsky – just don’t make it an obsession in your articles as it will taint your credibility.

Posted by Calibration | Report as abusive

A great idea, but the weak nations should have long ago adapted a policy of producing export industries. Even meant getting the rest of Europe to accept their non-level paying field. They should have realized they cannot live on hand outs for long.

Therefore, they are are not lead by lions that would stand up to Germany. We have the same type of politicians who allowing deindustrialization. They may not have much industries to begin with. We started with half the worlds industrial output at the end of WWII.

Posted by SamuelReich | Report as abusive

This is purely a theoretical scenario. Since if Germany would leave, so would the Netherlands (not mentioned in the article but the most important backer of Merkel in economic size), Austria, FInland and Slovenia. These are countries in roughly the same position as Germany (in short: financially in good shape) and who also share a common belief about economic management. Merkel is catching all the wind, but she is speaking not only for Germany.
A north/south division regarding the Euro (not the EU) in an orderly way is 1. a much more realistic scenario and 2. given the situation probably the only real way out of the problems.

Posted by maurits | Report as abusive

Interesting idea. But I wonder which other country would like to (and capable to) replace Germany to be the next “shoulder” of euro. France? I doubt France will still say the same thing they are saying now when they become the replacement of Germany. France will probably have a political and economic interests that are different after they become the shoulder of euro compared to now when Germany is still carrying much of the burden. The same thing goes for the other countries should France decline to be the shoulder of euro.

Perspective changes when you change seats.

Your boss will love to implement austerity measures throughout your company for maximizing your company’s profit, but you will probably love higher salary, bonuses and more bonuses. You will probably love free money even more.
Same thing with Germany and the rest of the euro zone. Take Germany out of the euro zone, and the replacement will probably do the same thing as Germany does.
How would you react if someone is having a spending spree on your expense?

Posted by k.w | Report as abusive

This guy is a joke, unbelievable that Reuters lets him write (even in op-ed).

Posted by HFMOTR | Report as abusive

Simple minds have simple solutions. The German economic engine disonnection from the train? What happens is the engine runs ahead and the rest slows down. New walls would go up but this time Germany would look east not west.

Posted by whyknot | Report as abusive

take the strongest economy out of the euro zone, that will fix the problem, you bet! How has no one thought of this yet? You are one brilliant man Kaletsky….. hey, I hear fox news is hiring, Rupert could probably use a brilliant mind like yours….

Posted by Seriously... | Report as abusive

Germany has been looking East ever since her reunification. In fact, the Euro was demanded by France in return for Germany to get her reunification. This is documented by pre-reunification negotiations. Germany’s reluctance to be more cooperative is a consequence of this old issue. The belief that she belongs to the East or nowadays mentioned as ‘Central Europe’ has been Germany´s undoing ever since Frederick the Great and it is tragic that German’s current leaders lack any historic vision. Today, what is at stake is a split of continental Europe into a slavic and Atlantic camp. I am German and firmly in the Atlantic camp. To understand this, it is worthwhile to study the years of Konrad Adenauer, Germany’s first post WW2 chancellor. He came from Cologne and was firmly in the Atlantic camp and he had plenty of fights with the German love affair with the Eastern prairies. As Soros, I fear that this summit will be a fiasco and yes, if it goes wrong it will have grave geopolitical consequences. The Western civilized world will suffer deeply and I would then prefer to seek a currency union with the USD!

Posted by lisandro | Report as abusive

Well everyone has had a go to rubbish this idea without offering an alternative. One thing is for sure the current situation and ideas of ‘more Europe’ are worse. Suggestions please?

Posted by pavlaki | Report as abusive

Laughing… Out… Loud.
Germany can easily get out of the euro zone, of course. However, the easiness the author talks about is felt on the German side, not on the EU side. You see, EU cannot easily let Germany go.
Oversimplifying, herding 16 idiot cats is not easier than herding 16 idiot cats and a smart one.
What you’re basically saying, and this makes the argument particularly idiot and inept, is that, since Germany doesn’t want to save euro, it could be taken out – but you seem to forget there’s a reason why Germany is being asked: they’re the one footing most of the bill… So you’re like a little kid in the store with his mom, saying “Mom, if you don’t give me the money for the ice cream, then you are free to go.”
Surely you CAN understand this much?

Posted by TudorM | Report as abusive

Plus leaving “the other 16 cats” continue to play the game and do the same thing they have been doing since now is only guaranteed to repeat the situation in a worse way!

Posted by TudorM | Report as abusive

Funny, does Kaletsky really think the Netherlands, Finland, Austria et al would join the Southern States?

Germany would not exit the Euro, the Euro would be split up in Sauerkraut-Euro’s and Garlic-Euro’s. Guess who would lose (and please look back in time, before the ‘Euro’, to establish if these countries’ competitiveness really depends upon the -weakness of the- Euro).

Posted by Robbedoes | Report as abusive

In maximum 3 to 5 years there will not be a EU anymore or a Euro-zone.

Institutionalized selfishness and deceit cannot be pillars of strength in United States of Europe.

The lack of moral values is destroying EU from it’s very core.
Hey, EU regulators, go back in your churches to rediscover civic moral values… European Union …just a Golem without a soul and without a mind ..losing even its life-inspiring words.

Piece by piece, the 4th Reich will crumble.

Posted by Bancherul | Report as abusive

German exit is easier than what the author has put it, if at all it were to be decided politically in angst rather than rationally. There is no need to restate the bank deposits of German Banks or currency denomination of past government securities which are in Euro’s. Thus German governemnt will not foot any bills on currency losses post German Euro exit. Euro will continue for all past assets and liabilities – no change. Germany will also not instruct for all new deposits to be accepted by German Banks in Marks and the German Banks will continue to accept deposits in Euro’s and slowly introduce Marks as currency for accepting deposits.

This will lead to least disruption to Eurozone or the global world order except for an one time blip in sentiments since the demand for Euro as a currency will remain and there will be minimal avenue for investors outside Germany to buy any Mark denominated paper leading to currency trading range being narrow rather than sharp appreciation of Mark or depreciation of Euro anticipated or feared.

Over a longer period of time, Euro may depreciate and Mark may appreciate, but this irrational process of German exit can only happen in angst and thus, hatred would mean reduction in German exports to the Eurozone. With this scenario, China (and on a smaller scale Russia) may become the biggest partner of Germany in future with mutually beneficial trade flows and financial flows. This can be an eventual threat to the macro US interests who may then seek better relationships with Eurozone and UK to counter this threat. May be thats the way a new political order could be created.

Posted by VPShah | Report as abusive

Ok, now we know that you do not like Germany, but that’s about all the article tells us.
1.) What on earth tells you that a euro zone ex Germany would be more unified in its political decisions? You think that without Germany they all agree on political & financial issues? You cannot justify this speculation with anything!
2.) The comparison with the US,UK & Japan is deeply flawed: The whole world trusts US treasuries, also UK treasuries have a much much better standing than any future euro bonds backed by Spain or Italy would have!!! Japan is a completely different case based on a completely different mentality. Japanese themselves shoulder the burden of their national debt…
3.)You completely ignore the historical, political and democratic aspects behind: +)Germany only joined the euro because it was promised: a)no bailout b)the ecb would strictly follow the rules of the Bundesbank *)Cutting Germany out would be cutting out a founding member of the eu & euro, would be cutting out the by far biggest country in both the eu & euro!!

To summarise, your whole argument rests on a massive devaluation of the euro once Germany would be out, hoping that international investors would be as eager to buy (bonds backed by Spain and Italy) as they buy US treasuries.

Go and get control over your anti-German feelings!!

Posted by querz | Report as abusive

I have a suggestion for a long term solution to the Eurozone
crisis.

Create a EU central health care insurance that subsidies the
health care throughout the EU.

The sounds fairly simple but could have enough teeth to
allow enough controlled capital flows whilst keeping the voters (mainly the
Germans and Finnish) in favour as well.

Countries like Greece and Spain would receive larger subsidies
lowering the cost of healthcare in these countries. This would create healthcare tourism from
other member states. It would look
attractive for North Europeans to retire to Southern Europe bringing with them
part of their wealth.

Europe would have a controlled fiscal transfer without the
loss of popular sovereignty. Both
directly and indirectly this would help correct the current account imbalances.

The current German central bank model works well within
Germany (Berlin cutting its Kindergarten subsidy at the suggestion of the
Bundesbank as example). However it’s
difficult for Germany to apply this model externally to other countries without
the loss of democracy in those countries.
A better solution is needed otherwise the German people will get tired
of opening their wallets to lend on false promises resulting in forcing the Chancellor
to pull Germany out of the Euro.

Any thoughts?

Posted by bardolph | Report as abusive

Germans for Germany. Wake up, withdraw from the euro today. Stop funding Greece, Spain, et al. It is a bottomless pit. These nation will never repay the loans.

Every day this stupidity continues, make it worse for everybody, especially Germany.

The facts no one wants to read.

Posted by ALLSOLUTIONS | Report as abusive

more stupidity from anatole

not so much from habit but rather his agenda as flunky for eurosceptic interests

germany is at the heart of the european monetary union
the euro without germany is a nonsense

reforming the political risk of certain countries addicted to debt and electoral porkbarrel politics has been blessed by german rectitude and and abhorrence of fiscal turpitude

ok, slow handclap for anatole, he is only serving up eurosceptic propaganda

Posted by scythe | Report as abusive

One simple point for everyone to remember: Germany is asking the rest of the Eurozone to pay their bills and not overspend. With Germany gone from the Eurozone the rest of the remaining countries would be free to inflate away their debt while still overspending. Since anyone with even the most rudimentary knowledge on the subject knows, lending to the EU would require a much higher interest rate to compensate for the inflation that will occur.

Posted by rocque | Report as abusive

Not so brilliant. Germany could leave. But do you think ‘business as usual’ in Sud-Europe would lead to success?

Posted by seymourfrogs | Report as abusive

Half of the posts i see are just name calling posts which indicates to me that the authors are expert at name calling and nothing else. We all are entitled to our opinions but if we want to be taken seriously, make coherent arguments not rants laden with a heavy sauce of name calling. So, finally i would like to know how many of the comments in this thread are from educated people either in economics or businesses. But from the vitriol i can pretty much deduce that they are neither, but rather self-inflated egos whose only impact is the comments columns of Reuters’ articles.

Posted by ofilha | Report as abusive

A German exit may help. But weak nations cannot import more than they export for long and they are small so trade is a greater percent of GDP.

For them the only long term solution is create export industries and make sure for short term other investments in their economies do not pay or get funded. Borrowing to raise local real-estate prices and import more was height of folly.

If they woe too much to do anything they must default to do the above.

Posted by SamuelReich | Report as abusive

Why is this strange man offered space to scribble here. Let me tell you, if Germany leaves the EU/EZ there will be a stampede for the exit. Think of Scandinavia, of the Baltics, of Germany’s small neighbours, of Poland, the Czech Republic, Slovakia, of Slovenia. Nice stuff that’s left over then.

Posted by Lambick | Report as abusive

Why is this strange man offered space to scribble here. Let me tell you, if Germany leaves the EU/EZ there will be a stampede for the exit. Think of Scandinavia, of the Baltics, of Germany’s small neighbours, of Poland, the Czech Republic, Slovakia, of Slovenia. Nice stuff that’s left over then.

Posted by Lambick | Report as abusive

To issue eurobonds is not the problem of the Eurozone and not the problem of Germany being in or out of the Eurozone. The itching point is, how the certain members of the Eurozone would behalf after the issuing of the Eurobonds. Merkel want to put rules and regulations for a common wellbeing purpose of how the Eurobonds would be used. That’s the point.
Why did Spain not taking action to reform the banking system and address the difficulties with it clearly. They told only as much as what was obvious at the time? This is not the way to deal with serious problems.
Why did Greece not took action three years ago in dealing with the problems and still don’t do it today?
Why did France new President Hollande promise freebees to the voters and the unions costing in total around 100 biln. $. Since yesterday he knows that he has to save 60 Biln. $ in the actual an next years budgets to meet the agreed targets within the Eurozone? While other nations increase retirement age from 65 to 67 to ease tensions on the future pension system, Hollande degreases the retirement age from 62 to 60. Is this the solidarity and structural reform that helps issuing Eurobonds?
Your dislikes of Germany is okay, but don’t mix it up with simple facts. Remember: Merkel is not against Eurobonds, if they are ruled into a system of problem solution directives. If Eurobonds would be issued today, Rajoy in Spain would not solve his banking problems, Hollande would finance his election promises, Greece would stop to organize itself. Launching Eurobonds with the manner like Ireland, Italy and Portugal deal with the crisis would be not a problem at all.

Posted by HECConsulting | Report as abusive

I perfectly agree with the auther’s analysis. I also want to add this to his analysis. Euro Zone will be better off if Netherland and Finland exit Euro along with Germany than only Germany leave the single currency. Contrary to the wrong belief of many commenters here, northern creditor countries are hugely benefitting from being within Euro, because they can export their goods to southern countries without forex appreciations. If they left Euro, their currencies (new Deutche Mark etc.) would skyrocket against Euro, and their exporters will be hit badly. On the other hand, countries remining within the Euro would be able to export more goods to the northern countries, which will boost the econmic activities and make it easier for the southern countries to trim their budget deficits.

Posted by tommo00 | Report as abusive

If Germany were to depart the EMU it would be immediately followed by the Netherlands, Austria, Finland who would not be prepared to accept the liability of the PIIGS on their relatively smaller balance sheets. The outflow of investment funds from an EMU ex Germany would accelerate.
The financial credibility of EMU is critically dependent on The financial strength of the German economy.
The departure of Germany would accelerate the breakup of the Euro Zone.

Posted by dtjmclarke | Report as abusive

The French PIIGS need their own hog pen.

Posted by mulholland | Report as abusive

So, you suggest Germany could leave the Euro Zone…

Interesting idea, actually. But these “exit the Euro”
arguments boil down to a desire to do two things that
are nasty:
1) have someone else pay your country’s bills,
and, since that is pretty unlikely,
2) just monetize the debt – which means print up new
money to repay the debt that the PIIGS ran up and aren’t
likely to be able to ever pay back – at least without
engineering a big inflation.

Now, there are sound economic reasons why both these
options are bad outcomes. The first is less worse,
than option two. Option number 2 – pay off the current
debts with new print-runs of money – is basically the
John Law “Systeme”, which was tried in France in the
early 1700′s. It was the first great national experiment
with printed money, and the popular view is that it
ended very badly. And it did, for most people. But
actually, it didn’t for the French State. The
resulting mass-inflation, and the powerful economic
collapse that followed the ultimate failure of the
“Systeme”, were very beneficial to the French State,
because it allowed it to inflate away about half of
its massive war debts from Louis 14′s adventures. But,
yes, most people (including Law himself, who was an
honest fellow), were utterly ruined by the runaway
inflation generated by the multiple printings of
paper-cash. (First, the paper notes were gold-backed,
And then, later of course, they were not.)

And the same game was played in Germany in the
early 1920′s, again, for initially quite noble
reasons, as the Reichbank’s president, Dr. Rudolf
Haverstein, attempted to keep a sufficient value of marks
circulating in Germany vis-a-vis their foreign-exchange
value. And again, the resulting mass-inflation
proved *very* beneficial to some, though it also utterly
destroyed the lives of many more. Germany had to repay
its WW1 reparations in “gold-marks”, but it had
financed its war debts by bonds that could be repayed
with worthless marks, so it basically used the same
cruel trick to avoid making good on its war bonds, as
the French did under John Law’s “Systeme”
I really urge anyone interested in this to take
some time to review the history of paper money failures.
What becomes clear, pretty quick, is that the so-called
“failure” of paper money, is actually an engineered
result. The inflation – always resulting from some form
of debt “monetization” – is not any kind of accident.
It is policy. And it is astonishingly effective, also.
It was done in Roman times, by replacing gold coins with
silver coins. And then, slowly reducing the silver
content of those coins until they were mostly all brass.
And then, making them smaller. And so on.
My point here, is that regardless of who breaks out of
the Euro-currency zone, the issue of debt monetization
will remain. Mr. Kaletsky argues this would become
easier with Germany leaving the Euro, and of course, it
would be. But it still remains a very, very bad idea,
as it is basically a form of mass-theft. It cannot be
anything else, can it?
The PIIG-subgroup, and/or anyone else, for that matter,
simply must put their operations in order, and run their
systems to be able to pay their incurred debts. If they
cannot, then aggressive bankruptcy must be made to occur,
and the assets sold to *new owners*, who must then be
faced with the same task, but perhaps with now lower
operational costs. This is often an unpleasent outcome
for those forced into bankruptcy, but – and this is the
key point here – it is the very best solution to an
ugly and painful problem. And, done right, a bankruptcy
removes the profligate fools and poltroons who wrecked
economic operations in the first place. So it is often
a necessary cleaning that has to occur, and ultimately
should allow growth to resume.
Far from leaving the Euro-currency zone, Germany should
simply take full charge of it – in an ideal world – as
they are the most productive nation, with the best and
most recent memory of how insanely destructive a poorly
managed paper-money experiment can be. But this will
not happen either. Germany will not be given complete
European authority, nor will it exit the Eurozone.

The political fraudsters who engineer modern “democracy”
will ensure that progress towards a viable European
federal entity will be slow, and painful. It must
reach that point someday, but it will be a grim slog.

The indebted nations will simply have to begin to
modernize their idiotic labour markets, sell off their
bloated, non-competitive state assets, vastly reduce
the number of non-productive government workers they
typically carry on the public payroll, and introduce
property taxes that fully fund civic needs. Then,
they must make long-term plans to pay down their debts,
using the real-money Euro’s that they still have access
to, and begin the process of creating the conditions
where legitmate economic growth can occur. And, sure,
weak and stupid nations may make the decision to leave
the Eurozone, so they do not need to run their economies
with real money, and be subject to the requirements of
economic discipline. But that is like a child, which
chooses often to avoid adult responsibilities, if it
can. That is pretty much always a bad outcome, is it
not?
Most of all, Germany should stick to its clear refusal
to be drawn into some further political fraud, whereby
it is forced to fund – rather than simply bankrupt – the
idiot governments that borrowed money that they cannot
(or more accurately – will not) now pay back.
And everyone should please review the various histories
of “debt monetizations”, and other paper-money frauds,
to see just how stupid and dangerous it is to play such
foolish games with national wealth. The money must be
kept “real”, despite the obvious benefits of inflation.

And everyone should also bear in mind that any break
up of the Euro Zone, will of course benefit those who
would like to see a weak and fractious Europe. And
who would that be, I wonder? I think most folks now
would favour a stable and growing European Federation,
but one where each member both pulls his weight, and
pays his own costs. The great trick, of course, is
to try to do this, without Ceasar’s Roman Legions
standing by to offer the needed discipline and
associated organizational assistance to foolish or
dishonest nations who don’t play by the rules.
- Rus

Posted by RusselFuture | Report as abusive

Prof. Zinn, Ifo-Instituts, wrote about a vacation in Greece is the euro.
But do offer the optimum…

Drachma. Weekend instead of the holiday.

Flash crossing phantom currency:

Euro >>> Drachma >>> Euro new exchange rate

for example:
1 Euro >>> 1 Drachma >>> 0.9 Euro

No trade or payment transactions in drachma.
Only the depreciation of domestic debt!

Period of operation – just a few hours, days.
Greece remains in the euro zone and devalue the domestic debt.
For optimal devaluation of debts the process can be repeated.

The transition could be easily modeled with/based on official statistic data.
Test Phantom-currency empirically. You can make a painless transition through an experimental phantom with the devaluation of the currency on the symbolic 0.1-1%.

Posted by KubKaramazoff | Report as abusive

Prof. Zinn, Ifo-Instituts, wrote about a vacation in Greece is the euro.
But do offer the optimum…

Drachma. Weekend instead of the holiday.

Flash crossing phantom currency:

Euro >>> Drachma >>> Euro new exchange rate

for example:
1 Euro >>> 1 Drachma >>> 0.9 Euro

No trade or payment transactions in drachma.
Only the depreciation of domestic debt!

Period of operation – just a few hours, days.
Greece remains in the euro zone and devalue the domestic debt.
For optimal devaluation of debts the process can be repeated.

The transition could be easily modeled with/based on official statistic data.
Test Phantom-currency empirically. You can make a painless transition through an experimental phantom with the devaluation of the currency on the symbolic 0.1-1%.

Posted by KubKaramazoff | Report as abusive

If ignorance is blis, this author wud be happiest person!!!

Posted by milkel | Report as abusive

This is like saying that, if a patient is not getting cured by treatment, better kill that patient!!!
Ohhhh, I forgot that Euthanasia is legalised in some European countries.

Posted by milkel | Report as abusive

I am suspecting that someone in Reuters misplaced this article here, instead of “Humour” section…pls chk out again guys.

Posted by milkel | Report as abusive

So, the answer is to threaten the leading voice of reason? Germany is the only major player admitting that Keynes was mistaken… that spending for prosperity is akin to having sex for virginity. They are the only voice saying that the emperors are wearing no clothes. Yes, the standard answer is that Germany is the paymaster. But, there is a reason for that. Germany is the paymaster. Over and over again, the other members of the eurozone have tried to talk Germany into placing itself into the same sinking vessel in which they all reside. But, Merkel refuses, to her credit (and the credit of Germany… pun intended). If the time comes that Germany reverses it’s position, I can personally guarantee three things: 1. The markets will absolutely rejoice for a day or two. 2. They will quickly return to chaos, as the inevitable decline begins. 3. Merkel will have destroyed the eurozone. But, on the bright side, they’ll all be in the same boat, patting each other on the back and saying that no one could’ve foreseen the magnitude of the problem, and that they did all they possibly could.

Posted by Boatguy | Report as abusive

Germany cannot support the weak countries much longer, The Netherlands, Austria, Finland are getting along alright for now but are not able to kick in to support the mismanagers. The Germans need the weak nations for export rasons and they have tried to rason with Grease and others but they chose to riot and burn. Too late now to say this, THEY SHOULD HAVE DOEN WHAT ENGLAND DID, stay with the POUND>

Posted by tedeee | Report as abusive

Forget it.
Here’s what would happen:
- Germany leaves the euro.
- 10s later it would dawn on France
* that their plan to tie down Germany with a bunch of weaker countries has failed
* that now /they/ are the ones that are supposed to pay the bills for the rest.
- France leaves the Euro.
- Italy figures that it just can’t fill the role played by Germany and France and leaves too.
At that point, a “common” currency” makes no longe sense and it gets abandoned.

Posted by emu | Report as abusive

franz josef early eu to be resurrected w/o bonehead wilson implementation of nationalities. Klein germany under bismarck before crazy wilhelm II is resurrected. Now if some of bismarcks realpolitik comes back, maybe it will all work (no german colinies this time). Will sitzburgen and transylvania and bukovina etc not be a problem this time around?? lots of luck.

Posted by harb123 | Report as abusive

Only one small problem with this theory – Germany leaves the Euro and what’s left? One big pile of economic road kill.

Posted by mbengle | Report as abusive

The euro-zone without Germany, far from being “economic road-kill”, would be more solvent than the US, Britain or Japan. This is demonstrated by the fiscal and current account numbers I quoted in the article. You can, of course, ignore the numbers and put faith instead in racial stereotypes that pit corrupt Greeks. lazy Italians and stupid Spaniards against hard-working clever Germans. This seems to be the approach to economics favoured by many politicians in Germany, Finland and the Netherlands. It is precisely this mode of analysis that could encourage Mediterranean countries to tell the Germans they can get lost and instead seek an alliance with Russia.

Posted by Kaletsky | Report as abusive

If Germany leaves the Euro:
- D.Mark exchange rate would increase to upper 30% against Euro;
- Imports would be cheaper for germans and they will notice a life style improvement and inflation near zero;
- However they exports will be much expensive and they car, chemical and heavy machinery industry will lose rapidly they markets in the former eurozone and emergent countries;
- Germany economy will colapse in less than a year (as already stated by their CEOs to Frau Merkel);
- Unemployment will rise to 20%;
- Some states (lander) will try to be integrated in eurozone again;
- Demonstrations will surface in major cities.
- The 4 “lander” already bankrupt will stop paying salaries and pensions;

Posted by Euroredux | Report as abusive

France and Italy would benefit because:
- They will provide equipment and agricultural goods to the rest of eurozone;
- They exports will increase, with a lower euro, occupying the markets of former german products;
- The banks would improve they profit with an increasing economic growth (german bank would suffer an hair cut equivalent to D.Mark exchange rate, since they old a lot of eurozone debt);
- Oil will follow devaluation of euro, which it is better to USA also, like the declining of german exports to USA;
- Public debt would be payable for these countries and manageable for the rest.

Posted by Euroredux | Report as abusive

Don’t base assumptions on prejudice, evaluate data:
- germans cook their books like anyone else;
- disguise unemployment figures (as already shown by reuters journalists);
- have 4 lander in bailout;
- have the biggest bank bailout;
- old the biggest public debt (absolute value).

Posted by Euroredux | Report as abusive