How to Break Up a Currency Union

Jonathan Tepper of Variant Perception has written an excellent report on the break-up of the euro. The report includes an overview of past break-ups of currency unions (the euro is not the first one that has failed), and a detailed 'how to' manual as to how to handle the likely coming break-up of the euro, this is to say, the exit of those current member nations that are clearly not able to live with the euro.

Also included is an assessment of what would likely happen to the economies concerned after they break away, default and devalue, illustrated by fairly recent historical examples.

A break-up would certainly be a traumatic event, but it wouldn't be the end of the world. On the contrary, since this would force the insolvent states to deal with their debt and competitiveness problems once and for all, it would pave the way for a successful new beginning.

As we always point out, the economic losses can not be wished away. They are a product of the boom, not of the bust – the bust merely revealed their existence. Instead of dragging the process of adjustment out with programs that are clearly failing and are creating social upheaval on such a grand scale that the situation seems more and more like a powder-keg waiting for a spark, it would be far better to opt for a radical new approach and admit that the currency union such as it is now constituted has failed.

 

Jonathan has graciously allowed us to promote the report on Acting Man, we highly recommend it. 

 

VP – February 2012 – Eurozone Breakup – Summary


 
 

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One Response to “Variant Perception – A Primer on the Euro Break-Up”

  • tad:

    Good read, I have question regarding one of the recommendations in report:
    “The countries that remain within the euro will have to take steps of their own in order to deal with the unilateral exit by a departing country.
    1. Print new currency – In order to limit large inflows of “old” euros from the any country that has exited the euro, the core countries should print new euros and then de-monetize old euros.”

    How could it possibly affect euro holders outside of eurozone, e.g people who have some euro savings in Russia or China, looks like those savings would be de-monetized as well? or there is some way to differentiate e.g greekeuros from euros circulating in Russia?

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