How to Quit the Euro

Économiste Monétaire

The Economist carries several interesting articles this week on the Euro crisis:

How to Resign from the Club

The Future of the Euro

Germany and the Euro

The Crisis in the Euro Area

Barry Eichengreen has a piece on VoxEU on the bailout for Ireland:

Irish interest spreads did not fall and contagion continues. Here one of the world’s leading international economists explains why. Short-sighted, wishful thinking by EU and German leadership designed a package that is not economically feasible in the long run (it would trigger a vicious debt deflation spiral) and it is not politically sustainable in the short run. The Eurozone had better have a Plan B for when the new Irish government rejects the package next year and imposes a haircut on Irish bank bondholders.

Continued at:
http://www.voxeu.org/index.php?q=node/5887

Slippers

Bill Mitchell wrote about the first of the articles today.

[Commenting on the part about bond sales] None of this is an accurate description of anything inevitable. The sovereign government could simply ignore the capital markets. Please read my blog – Who is in charge? – for more discussion on this point.

Restoring sovereignty provides all the fiscal capacity to spend in the local currency and to honour any obligations denominated in that currency. As long as there were real resources that were idle the government would have the capacity to expand employment and well-being by using its newly restored currency.

A sovereign government does not have to issue IOUs. A sovereign currency is really equivalent to an IOU. The important point is that there would be a demand for this “new” currency as long as the government allowed the non-government sector to relinquish its tax obligations using it.

The revelations of last week (see more on this below) that the US Federal Reserve lent trillions to the non-government sector at zero interest rate demonstrates that credit does not need to evaporate when private banks go on “holiday” in a crisis. So there is no reason for the money supply to shrink fast. The demand for credit can be satisfied without financial constraint by the currency-issuing capacity of the newly restored sovereign government.

Anonymous1987

What would be the implications for the MNE sector? membership of the Euro was a key drawing point for many MNE's second only to the corporate tax rate.