Prior to Greece receiving its second bailout, for instance, political leaders said "(w)e must accept the terms of this bailout, regardless of the cost to Greece, or we risk being kicked out the euro!"
This makes me wonder what it is about remaining in the euro that national leaders find so crucial, even if it’s not in the economic best interests of their citizens. This is especially pertinent because Spain finds itself in exactly the same boat at present. It would arguably be easier for Spain to abandon the euro and readopt the peseta, rather than attempt the excruciating internal devaluation it is now embarking upon.
So why not do it? I have a couple of ideas:
1. It would violate the post-war consensus.
Since World War II, the nations of Europe have agreed to ever-greater integration, to ensure that the same calamities of 1939-45 never occur again. So when Europe faces a problem, More Europe is the basic principle upon which leaders act. To violate that would be to throw away more than six decades of cooperation (of course, Britain is the exception to the rule).
2. It is politically impossible.
During the negotiations for the second Greek bailout, I had the impression that Greek leaders didn't in the least like what they were being asked to do to their country, but that international political pressure obliged them.
At one point, Angela Merkel and Nicolas Sarkozy flew into Athens to negotiate with bondholders to make them accept losses on their bonds. How’s that for an incentive?
Of course, for me at least, historical and political obligations do not make square pegs fit into round holes. To the extent that national leaders continue to argue that euro membership is in their best interests, at almost whatever cost, I consider that a betrayal of the peoples of Europe.
What do you think? Should Europe continue with the euro project? Or is it time to admit the experiment has failed and recommission individual national currencies?
at foreign exchange specialists
(Guest blogs do not necessarily reflect the views of doshebu.)