Experts: Germany Should Leave the Eurozone, Not Greece or Spain

Wednesday, 27 Jun 2012 10:23 AM

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Germany, not Greece or Spain, should leave the eurozone and benefit everyone in the currency union, says Kenneth C. Griffin, CEO of the Citadel investment company, and Anil K. Kashyap, a University of Chicago economist.

Worries that Greece will default on its debts, abandon the euro and pressure Spain and others to follow suit have roiled markets and cooled economies for over two years now.

Flawed thinking, Griffin and Kashyap write in a New York Times OpEd.

"A better, bolder and, until now, almost inconceivable solution is for Germany to reintroduce the mark, which would cause the euro to immediately decline in value. Such a devaluation would give troubled economies, especially those of Greece, Italy and Spain, the financial flexibility they need to stabilize themselves," the two write.

"A weaker euro would give a boost in competitiveness to all members of the monetary union, including France and the Netherlands, which is why they might very well choose to remain in it even if Germany were to gradually leave. A resurgence of manufacturing would also allow the vast unemployment rolls of Spain, Portugal, Greece and other countries to begin to decline."

Such a scenario wouldn't address massive debt overhangs plaguing many eurozone economies though it would allow them to overhaul their economies and pay off their bills.

Germany would suffer at first thanks to a strong currency, which would hurt its export base, though the country could phase in foreign-exchange tools to deal with such imbalances while its industrial base adjusts.

"While most observers, including German policymakers, believe Germany will do what is necessary to save the euro, it is more important to save the European Union, which is older, larger and more significant than the eurozone," Griffin and Kashyap write.

Germany, meanwhile, continues to thwart calls to take part in a single bond issue backed by eurozone nations that would lower borrowing costs in debt-ridden European countries.

France supports the selling of the so-called Euro Bonds, though Germany does not on the argument it moves debt from countries like Greece onto the backs of healthier nations and could encourage hefty spending to resume in southern Europe.

"Apart from the fact that instruments like Euro Bonds, Euro Bills, debt redemption schemes and much more are not compatible with the constitution in Germany, I consider them wrong and counterproductive," German Chancellor Angela Merkel said ahead of a European Union summit, according to the AFP newswire.


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