Some Economists Say Greece Should Stay In the Euro -- But Germany Should Exit It

I missed this when it was floated earlier. But it seems interesting, and people are talking about it again.

It's not so much that it's proposed that Germany exit the Euro-- they'd continue to have the Euro as a currency, if I understand this right.

It's that they would re-introduce the hard-currency Deutschmark, to compete with the Euro; their relative values would fluctuate against each other.

Germany (and the hard-money northern/central European states) would have what they want -- a stable, hard currency which is not devalued due to Mediterranean spending habits, and the rest of Europe would get the falling-in-value New Lira that it really seems to want.

A better, bolder and, until now, almost inconceivable solution [to the Greece crisis] is for Germany to reintroduce the mark, which would cause the euro to immediately decline in value. Such a devaluation would give troubled economies, especially those of Greece, Italy and Spain, the financial flexibility they need to stabilize themselves.

Although repeated currency devaluations are not the path to prosperity, a weaker euro would give a boost in competitiveness to all members of the monetary union, including France and the Netherlands, which is why they might very well choose to remain in it even if Germany were to gradually leave. A resurgence of manufacturing would also allow the vast unemployment rolls of Spain, Portugal, Greece and other countries to begin to decline. The tremendous loss of human capital and human dignity we are witnessing would ease.

...

Unlike Greece -- whose exit from the euro would require either a redenomination or outright repudiation of its euro-denominated debts (with potentially catastrophic financial consequences) -- Germany would be able to reintroduce the mark without altering the form of any current asset, liability or contract. For example, euros deposited in German banks would remain euro-denominated. So would outstanding German sovereign and corporate debt now denominated in euros.

It's not all upside -- German industry would be hurt, due to (if I understand this) their hard-currency Deutschmarks making their products more expensive.

Meanwhile, German economics experts say that countries unable to get their finances in order should be invited to exit the Euro.

Countries should be able to exit the euro as a "last resort" if they are unable to manage their debts, the German government's independent economic advisers say, in a sign of Berlin's hardening attitude towards propping up fellow members of the single currency....

"A permanently unco-operative member state should not be able to threaten the existence of the euro," the economists said in a special report, published on Tuesday, calling for countries to exit the eurozone if it is necessary as an "utterly last resort".

The panel is made up of five so-called "wise men" of German economics, so this is fairly influential suggestion.

posted by Ace at 05:01 PM

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