By Nouriel Roubini for Project Syndicate
Early Retirement for the Eurozone?
Whether the eurozone is viable or not remains an open question. But what if a breakup can only be postponed, not avoided? If so, delaying the inevitable would merely make the endgame worse – much worse.
Of course, a breakup now would be very costly, requiring an international debt conference to restructure the periphery’s debts and the core’s claims. But breaking up earlier could allow the survival of the single market and of the EU. A futile attempt to avoid a breakup for a year or two – after wasting trillions of euros in additional official financing by the core – would mean a disorderly end, including the destruction of the single market, owing to the introduction of protectionist policies on a massive scale. So, if a breakup is unavoidable, delaying it implies much higher costs.
But politics in the eurozone does not permit consideration of an early breakup. Germany and the ECB are relying on large-scale liquidity to buy time to allow the adjustments necessary to restore growth and debt sustainability. And, despite the huge risk implied if a breakup eventually occurs, this remains the strategy to which most of the players in the eurozone are committed. Only time will tell whether betting the house to save the garage was the right move. (my emphasis)
Nouriel Roubini, a professor at NYU’s Stern School of Business and Chairman of Roubini Global Economics, was one of the few economists to predict the recent global financial crisis. One of the world’s most sought-after voices on its causes and consequences, he previously served in the Clinton administration as Senior Economist for the President’s Council of Economic Advisers, and has worked for the International Monetary Fund, the US Federal Reserve, and the World BankPrint This Post Send To A Friend