The debt crisis has upended lots of my assumptions about European politics, so it’s perhaps not surprising that I find myself agreeing with just about everything in this piece from The Telegraph by Mehreen Khan, advocating a German exit from the euro. Less surprisingly, I also agree in general with this NY Times article by Shahin Vallee, who also concludes that the (virtually inevitable) breakup of the euro would be better achieved by an orderly German departure.
One point made clear by the Greek disaster is that the mechanics of exit from a currency union are feasible only if the new (or, in this case, revived) currency is stronger than the old one. So, the appropriate way to break up the euro is for Germany, and other countries that want to remain in a German currency union, to switch to the Deutschmark. That way, existing euro-denominated contracts and accounts stay in euros, which can be freely exchanged for marks. Since the mark is expected to appreciate, there’s no reason for a run on banks in advance of the switch.
All this assumes that a breakup of the euro is desirable. In my view, the euro has failed on every count.
* The euro has failed in the aim of creating an Europe-wide currency union. The countries still outside are counting their blessings, and will almost certainly never join.
* The fallback position, based on the idea of the eurozone as the core of “two-speed” Europe has also failed. This idea was always based on the assumption of a vision shared between France and Germany, an assumption that has been destroyed, in large measure, by the euro. Far from being a unifying force, the euro has gone a fair way to reviving the demons the EU was created to keep at bay
* Economically, the euro has been a disaster, producing a deep depression in most of Europe and not even doing much for Germany. It’s an open question whether this was an inevitable consequence of a common currency, or the result of ECB mismanagement in the crucial years after the crisis, but either way, this is a failed experiment.