The question is raised by Bob Pisani (CNBC’s “Trader Talk Blog”). He summarizes an interview in the German newsmagazine Spiegel with economic historian Hans-Joachim Voth who studied the history of 28 European countries over the last 90 years and has come to the following conclusion:
1) “Austerity and anarchy are closely linked”
2) “Savings (budget cuts) amounting to just one percentage point of GDP are accompanied by social unrest. And when they reach two or three percentage points, it massively increases.”
Voth also gives the euro another five years before disappearing but says it is Germany that should quit the euro, not Greece. This is precisely what the former head of the Federation of German Industries, Hans-Olaf Henkel, has suggested in a Financial Times opinion, “A sceptic’s solution – a breakaway currency” on Tuesday August 30.
Read the whole CNBC post here .
Read also the complete Voth interview in the SpiegelOnline.
“Spiegel: Wouldn’t abandoning the common currency sound the death knell for the EU entire project?
Voth: I believe that the consequences of ending the euro have been overstated. Not every dumb economic idea needs to be defended to the bitter end. Europe is infinitely more than the European Union, and the European Union is infinitely more than the euro.”
1) Rioting has already begun in Greece.
2) Both Germany and Greece could benefit from quitting the euro … but also Portugal, Spain, etc.
3) Five years seems quite a long time given the deteriorating conditions of Greece, Portugal and Spain and the growing criticism of the euro in Germany. My guess would be that a radical move could be taken after the coming French and German elections.
4) In the meanwhile the only realistic policy would be to substantially devaluate the euro vis-à-vis the dollar, but with Germany staying in the eurozone to take its share of responsibility for the debasement of the external debts in euros, after benefiting from years of undervaluation of its “implicit DM” vis-à-vis other member countries within the zone.
5) Lastly, Voth sees a “southern euro” surviving with France, Italy and Spain, and maybe others, but he fails to recognize that the divergences between these economies would perpetuate the present euro problem. It would not constitute an optimal currency area either, and thus it will break down sooner or later. Sooner would be best.