Tuesday, September 4, 2012

Leaving the Eurozone

Much speculation has gone on about countries leaving the euro. Having their own currency would be of immense advantage to struggling European countries like Spain and Greece, insofar as they could use monetary policy to attempt to revitalize their economies. On the other hand, these countries are exactly the ones which can least afford to bear the costs of abandoning the euro. The issue's urgency was recently highlighted by the revelation that some companies are making very specific preparations for a Greek exit.

In response to this, some have suggested that it may be Germany that exits the euro. It can better afford the associated cost (even just printing the appropriate quantity of paper money is a logistical nightmare), and this would cause less trauma to the weaker economies than in a scenario where one or many of them exited. However, such speculation misses an important point, beyond the political implausibility of this suggestion.

Germany has no need of its own currency - it has already got one, and it's called the euro. As Evan Soltas points out, the German economy is a decisive factor in the European Central Bank's policy making, getting twice as much consideration as the size of its economy would intuitively suggest.

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