Greece’s recent resistance to continuing and even intensified austerity measures as it sought help to repay its various debts has brought increased speculation from pundits, and plenty of calls from officials throughout the eurozone, for the country’s exit from the euro.
Yet some very prominent economists are now calling for what might be the opposite of that action: an exit from the eurozone—but by Germany, not Greece. Germany’s strong economic condition is not just a divisive factor in the struggle to aid Greece to survive economically—many of the calls for a “Grexit,” after all, came from Germany—but it also handicaps more countries within the eurozone than Greece.
So in the unlikely event that Germany should decide to leave the united currency behind—in the interests of preserving its own strong economy—what might that mean for the other members of the eurozone, and for the people who invest in them? Here are some of the economists’ speculations.
In a New York Times op-ed, economists Kenneth C. Griffin, founder and chief executive of investment firm Citadel, and Anil K. Kashyap, a professor of economics and finance at the University of Chicago Booth School of Business, pointed out that reintroduction of the mark would make the euro drop in value immediately—something, they said, that would provide “troubled economies” an opportunity they don’t have at present: financial flexibility on the road to stabilizing themselves. Greece, Italy and Spain would be the chief benefactors of such a move.
But all the countries in the eurozone would become more competitive with a German euro exit, provided they stayed in the joint currency—something that might induce both France and the Netherlands to stick with the euro if Germany left, rather than departing in its wake. Being more competitive would provide a much-needed boost to manufacturing, which would help cut Europe’s terrible unemployment rates and also the human toll taken by the lack of jobs.
Southern European countries would get “breathing room to restructure their economies, reform labor markets, collect more taxes and reassure investors.” In addition, they’d be much better able to pay their sovereign debt, thus helping to end both debt and banking crises.
A cheaper euro would also spur foreign investment, making Spain’s real estate market in particular look far more tempting. And if money began to flow in, that would soothe worried investors already alarmed at unrealized property loan losses on the books of Spanish banks.
While Germany wouldn’t come out of the transition totally unscathed, such a move wouldn’t immediately introduce chaos into the markets, since it wouldn’t be leaving in order to abandon euro-denominated debts (as Greece would if it left the euro). The economists suggested Germany could return to the mark in stages, first issuing mark-denominated government bonds and later allowing corporate securities to follow. While its industrial base “would unquestionably endure hardship in the transition to a stronger currency,” they said, it would over time manage to “adapt and move forward,” and in early years it could manage the mark’s rate of appreciation, “much as China or Switzerland do today.”
Why should Germany do such a thing? To save the EU, the authors said, which is “older, larger and more significant than the eurozone” and a more important goal. Germany, like Britain, can “be part of the European Union without being part of the euro.” However, if Germany stays, southern Europe will continue to endure austerity and “most likely … more bailouts,” while Germany itself would need, if the euro is to survive, to put its financial strength on the line to preserve it—and that may not even work.