Working Paper: NBER ID: w13393
Authors: Barry Eichengreen
Abstract: The possibility that the euro area might break up was being raised even before the single currency existed. These scenarios were then lent new life five or six years on, when appreciation of the euro and problems of slow growth in various member states led politicians to blame the European Central Bank for disappointing economic performance. Highly-placed European officials reportedly discussed the possibility that one or more participants might withdraw from the monetary union. How seriously should we take these scenarios? And how significant would be the economic and political consequences? It is unlikely, I argue here, that one or more members of the euro area will leave in the next ten years; total disintegration of the euro area is even more unlikely. While other authors have minimized the technical difficulties of reintroducing a national currency, I suggest that those technical difficulties would be quite formidable. Nor is it certain that the economic problems of the participating member states would be significantly ameliorated by abandoning the euro. And even if there are immediate economic benefits, there would be longer-term political costs.
Keywords: Euro Area; Monetary Union; Economic Consequences; Political Implications
JEL Codes: F15; F33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| country's decision to leave the euro (F36) | economic conditions leading to that decision (E66) |
| country's decision to leave the euro (F36) | increased debt servicing costs (F34) |
| country's decision to leave the euro (F36) | political repercussions (D72) |
| economic problems faced by participating member states (F55) | likelihood of exit being low (J63) |
| exit from euro (F36) | damage to diplomatic relations (F51) |
| exit from euro (F36) | diminished influence in European discussions (N93) |
| economic context of the country considering exit (E66) | likelihood of exit being low (J63) |
| reactions of remaining members (Y70) | likelihood of exit being low (J63) |
| institutional reforms (O17) | likelihood of exit being low (J63) |