EZ break-up stands to benefit the core

I’ve argued elsewhere on this blog that the weaker countries in the EZ stand to benefit from abandoning the euro. Rather than undergo an endless process of retrenchment inside the single currency, they could grow much faster following a nominal devaluation outside the euro area. This would not just benefit the peripheral countries, however. The core countries stand to gain from weaker countries abandoning the common currency as well. Read more of this post

What happens to Ireland if Greece defaults

This piece first appeared in the Guardian on September 21st and has been reposted here with the Guardian’s permission.

Greece is hanging by a thread and Ireland is getting increasingly nervous about the implications for its own future.

The whole point of austerity measures in Greece was to reduce the primary deficit. With retrenchment choking off any hope of economic growth, the opposite has occurred.

There is now a real chance that Greece will be denied the €8bn tranche of the previously agreed €110bn bailout programme, in which case default would be inevitable and it would most likely abandon the euro.

If this happens, what are the implications for Ireland?

Both the troika and Ireland have a part to play in determining whether the country follows suit or not. However, as long as EU leaders remain committed to the euro project, Ireland should stay the course and continue to implement the terms of the bailout programme.

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Merkel/Sarkozy meeting: another missed opportunity

This piece also appeared as an op-ed in Die Zeit on August 17th in German (http://www.zeit.de/wirtschaft/2011-08/euro-merkel-sarkozy). It has been reprinted here in English with permission from Die Zeit.

Throughout the euro crisis EU leaders have never missed an opportunity to miss an opportunity, and yesterday’s meeting between German chancellor Angela Merkel and French president Nicholas Sarkozy was no exception.

Ms Merkel and Mr Sarkozy made it clear in a joint statement following the meeting that their focus is on European governance and that the core countries’ coffers will remain closed until greater fiscal discipline is achieved.

Most of the measures announced by Ms Merkel and Mr Sarkozy miss the point or will be impossible to implement. More important than the measures that were announced are the measures that were omitted.

The two leaders insisted that the European Financial Stability Facility (EFSF) will not need to be enlarged and that eurobonds are not currently being considered.  A line cannot be drawn under the crisis in the short-term without the former or in the medium- to long-term without the latter.

I am certain that market pressure will force euro area leaders to expand the EFSF soon. It is unlikely that the core countries will ever sign up for eurobonds though, in which case the only alternative is euro area break-up.

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