Benefits and drawbacks of Germany abandoning the euro
1. Introduction
In the current vulnerable times when Europe is still going through a crisis, most specialists believe that the Euro zone will survive. Nonetheless, others provide a route for re-establishing competitiveness and economic growth in the area: “Leave the euro, go back to national currencies and achieve a massive nominal and real depreciation” (Roubini, 2011).
The majority of economic debates concerning a hypothetical collapse of the Eurozone consider that Greece and other financially troubled countries should abandon the euro. However, one of the main problems and fears with this solution is that once a weak country decides to exit, the whole monetary union would collapse. Assuming a potential exit from Greece would cause a fall in its new currency. Global perception in the capital markets will be that an analogous exit from Italy would follow. Likewise, this chain process might also drive France out of the Euro zone and thus, breakup of the entire European Monetary Union (EMU) would be inevitable (Belke, 2012). Conversely, a captivating new possibility focuses on quite the opposite – the current economic problems could be resolved if Germany leaves instead. Adopting the Deutschmark again would increase production and real consumer wages. Germany, running a current budget surplus, is lending money to financially troubled countries and could enhance their own living standards instead. Furthermore, this would lead to rapid changes in euro zone countries’ competitiveness, which alternatively would have been a sluggish process brought by high inflation in Germany and high unemployment in other countries. (Wolf, 2012). Based on recent economic debates, this paper tries to answer whether an exit of Germany from the euro is a better way of dealing with the crisis as opposed to a weaker country leaving. The following section explains briefly the costs of weaker countries abandoning the euro. After that benefits and drawbacks of Germany leaving
In the current vulnerable times when Europe is still going through a crisis, most specialists believe that the Euro zone will survive. Nonetheless, others provide a route for re-establishing competitiveness and economic growth in the area: “Leave the euro, go back to national currencies and achieve a massive nominal and real depreciation” (Roubini, 2011).
The majority of economic debates concerning a hypothetical collapse of the Eurozone consider that Greece and other financially troubled countries should abandon the euro. However, one of the main problems and fears with this solution is that once a weak country decides to exit, the whole monetary union would collapse. Assuming a potential exit from Greece would cause a fall in its new currency. Global perception in the capital markets will be that an analogous exit from Italy would follow. Likewise, this chain process might also drive France out of the Euro zone and thus, breakup of the entire European Monetary Union (EMU) would be inevitable (Belke, 2012). Conversely, a captivating new possibility focuses on quite the opposite – the current economic problems could be resolved if Germany leaves instead. Adopting the Deutschmark again would increase production and real consumer wages. Germany, running a current budget surplus, is lending money to financially troubled countries and could enhance their own living standards instead. Furthermore, this would lead to rapid changes in euro zone countries’ competitiveness, which alternatively would have been a sluggish process brought by high inflation in Germany and high unemployment in other countries. (Wolf, 2012). Based on recent economic debates, this paper tries to answer whether an exit of Germany from the euro is a better way of dealing with the crisis as opposed to a weaker country leaving. The following section explains briefly the costs of weaker countries abandoning the euro. After that benefits and drawbacks of Germany leaving