Why the eurozone won’t break up – I think…

@ Paula – please be respectful of other opinions.
@ Boriss Kuzmins – If bank runs start anyway, then there would be completely other things to worry about, as bank runs are (usually) effect of a untrustworthy bank system, not the initial causes.

@ Armands Strazds:
-“Very true. This is why Latvia has to postpone its joining the EMU until its economy is developed enough to be internationally competitive at least at EU average. Everything below that, with “fiscal discipline” introduced, would lead to conservation/stabilization of underdevelopment.”

I see a significant difference between Latvia restoring its competitiveness outside of the EMU, while being pegged, and Latvia restoring its competitiveness while being in the EMU. Being in the EMU, would create more confidence in the government thus allowing it borrow more cheaply (thus saving money of tax-payers on interest rate payments).
If you refer to Latvia gaining competitiveness by devaluation, then that’s a completely different story…

-“Infinitely high is only the author’s exaggeration, and most probably the cost of upholding the ineffective and unsustainable monetary system, having caused already too much suffering for too many.”

It is indeed an exaggeration, but the argument remains standing. Right now we can see the price of the bailout which in the end is paid by the French, German and other taxpayers. What we cannot see is the losses which would take place. The described scenario in paragraph 3 makes me think that the bailouts are cheaper.

Have a nice day,
Mārtiņš

The change from EUR will cause bank runs. But what if bank runs start anyway? Then introducing drachma will not be as impossible as it seems now.

And again a cute propaganda article by Prof. Hansen — obviously the toughest euro crusader around :)

“If the country wants to join it must adhere to policies that do not create another Greece, i.e. strict fiscal discipline and a ‘German’ attitude towards cost competitiveness.”

Very true. This is why Latvia has to postpone its joining the EMU until its economy is developed enough to be internationally competitive at least at EU average. Everything below that, with “fiscal discipline” introduced, would lead to conservation/stabilization of underdevelopment.

“The cost of such a systemic collapse is, well, infinitely high implying that it is worthwhile to avoid at virtually any cost.”

Infinitely high is only the author’s exaggeration, and most probably the cost of upholding the ineffective and unsustainable monetary system, having caused already too much suffering for too many.

“one should expect an avalanche of lawsuits alleging that such a conversion is illegal.”

Suggest author takes a look at international law. The opposite is the case: re-denomination into national currency is what national governments can and should do.

A textbook example of irresponsibility and shortsightedness of Latvia’s politics would be squeezing the rest of resources from this economy and population in order to squeeze the country into the agonizing eurozone only to watch its crash from the front seat by the year 2016 — a common estimation today.

The whole Greek hysteria is blown out of proportions by the US financial markets traders/analysts who are eager to shift the costs to Germany via common eurozone bonds. As to Greeks, they would be insane to leave eurozone since being part of the project is the only credibility they have. I think a lot of people at the core Europe would sigh with relief if Greece left. The only problem remaining would be to deal with steadily appreciating euro… And the Greeks could continue their before-the-EU accession “success story” of regularly “improving competitiveness” through currency devaluations, inflation and political instability – in complete oblivion. I beleive, Greeks remember well this “success story” of old and will stick to euro at any cost.

(Off topic: one may also wonder where the successful enterprises of this continuous “improvement of competitiveness” vs. Deutsche Mark are. Considering that drachma was losing value almost all the time should be quite a lot of them around competing successfully in the German market.)

Of course, it means bankruptcies, unemployment etc. but bankruptcy is not such a big tragedy nowadays. I don’t think they have debtors prisons in Greece. Unemployment should not go higher than 25%. Which means that 75% of the workforce are quite happy “to have their jobs in these tough times”. To sum up, Greece will never leave eurozone… I think. :) Of course, nations sometimes go suicidal, for examples we should not look too far.

I would rather contemplate other scenarios. E.g., what happens if the brainwashing works and Ms. Merkel agrees to a common eurozone bond. And then, let us say, after a year, the bond issuance is deemed unconstitutional by German courts. Or… what happens if Ms. Le Pen puts up a good fight against the current French establishment. Or… what if the Northern League gains considerably in elections… etc.

I have to agree with the author, that the collapse will be expensive, damaging etc.

But hasn`t this been a case of all union collapses in human history… they still happened.

>>> Imagine that talk gets serious about Greece leaving the eurozone. Everyone knows that the reason for reintroducing a new drachma is to let it devalue sharply to regain Greek competitiveness that has been eroding steadily in the past decade. Our Greek friend should thus be concerned about his savings – they are in euros but will be converted into drachma and devalued.
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Unless we hold dear the ideas of Valentin Pavlov (the last Soviet prime-minister, who introduced money reform in the USSR in 1991 – by sharply withdrawing all 50 and 100 ruble bills with a 3 day transition period) – this does not need to happen. If somebody (no matter – German, Greek or any other private citizen or company) owns euros, then they own euros and nobody is going to confiscate or forcibly nominate them in drachmas.

If drachma is re-introduced, then this would probably mean that everyone is holding on to their old savings in euros, but Greek government at some moment starts paying its people in drachmas. So for some time euros and drachmas will circulate in parallel and will be traded at whatever currency exchange rate they will have.

Of course this re-introduction will be painful – real earnings in Greece would sharply go down (since the initial exchange rate would not hold) – but it is sometimes better to have horrific ending rather than an unending horror. Other alternatives are even less appealing – EU could start treating Greece (or Latvia for that matter) as some kind of a US state rather than a sovereign nation. If federalism becomes stronger, if there are more centralized control over what Greek government is allowed to spend (and therefore – ECB is more willing to bail them out, if something bad happens), then it becomes doable and we can preserve euros everywhere. But this would be the beginning of some new entity (EU-empire?) and the end of sovereignty in some of the 27 member states.

So, what’s the scenario ? Massive bancrupts of Greek banks & companies ?