When the Euro Falls Apart - A Sequel
59 Pages Posted: 4 Feb 2012 Last revised: 27 Jun 2012
Date Written: January 31, 2012
Abstract
This paper examines the case for Member States withdrawing from the euro area (using Greece and Italy as examples), focusing on the economic benefits to exit and the operational and legal obstacles to doing so. It concludes that withdrawal is preferable to solely restructuring debt that remains denominated in euros. While both techniques can decrease debt burden, only withdrawal and establishment of a new currency allows for devaluation that can restore the competitiveness of economies. While some commentators fear the losses that devaluation might impose, particularly on European banks, the paper proposes using the European Union’s existing Exchange Rate Mechanism (ERM) to ensure that losses could be held to levels comparable to the debt haircut achieved through restructuring. This plan should be adopted now whether or not Greece uses it so it is in place for possible future withdrawals.
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Withdrawal and Expulsion from the EU and EMU: Some Reflections
-
Towards a Euro(Pean) Monetary Fund
By Daniel Gros and Thomas Mayer
-
Towards a Euro(pean) Monetary Fund
By Daniel Gros and Thomas Mayer
-
Sovereign Default Risk and Private Sector Access to Capital in Emerging Markets
By Christoph Trebesch, Udaibir Das, ...
-
Making a Voluntary Greek Debt Exchange Work
By Mitu Gulati and Jeromin Zettelmeyer
-
Making a Voluntary Greek Debt Exchange Work
By Mitu Gulati and Jeromin Zettelmeyer
-
How to Deal with Sovereign Default in Europe: Create the European Monetary Fund Now!
By Daniel Gros and Thomas Mayer
-
Adjustment Difficulties in the GIPSY Club
By Daniel Gros
-
By Andre Nollkaemper and Gerrit Betlem