Who should leave the Euro: Greeks or Germans??

From Kiron Sakar at Big Picture:

"Early days, but I for one believe that the trend away from [the Greek ultra-leftist party] Syriza will continue. Greeks, by an overwhelming majority (between 75% to 80%) want to remain in the Euro, as they realise that the reintroduction of the Drachma will result in an effective devaluation of at least 50%, by all accounts. The resultant hardship (the need to close the current account deficit to zero immediately) will make the current austerity plans seems like a mild dose of influenza, compared with the pneumonia that will follow an Euro exit."

One thought I had was what if Germany (and possibly Austria and the Netherlands) chose to leave the Euro and go back to their own currencies?  Why stay in an economic community whose goals are so different from your own? On some level that would make just as much sense. Ezra Klein broached this issue last year:

"Now, what would happen if a financially sound country like Germany decided to leave the euro, in order to maintain its own currency? Even that would hurt. A lot. Germany wouldn’t default on its national debt — in fact, its new currency would likely be worth more than the old euro — but its banks would suddenly have assets in the old, devalued currency. Balance sheets would be thrown out of whack, and Germany would have to pour an enormous amount of money into bailing out its banks. What’s more, the country’s exports would likely collapse. All told, UBS estimates, the cost of secession to a country like Germany would likely reach 20 percent to 25 percent of GDP, and remain at about half that for a few years thereafter.

One thing UBS notes is that it would be much, much cheaper for Germany to simply bail out Greece, Ireland, and Portugal outright (that would cost about 1,000 euros for every German man, woman and child in one swoop) than it would be for Germany to exit the euro zone (which would cost the average German 8,000 euros the first year and 4,500 euros thereafter). Bailouts are deeply unpopular in Germany, and for good reason, but they look like the cheaper path. Even Bernard Connolly’s estimate that it would cost Germany 7 percent of its GDP for several years to bail out all troubled euro zone countries, up to and including France, looks like a less-painful option at this point."

My comment: German citizens would be happier with a bailout scheme if the debtor nations were willing to enjoin some austerity, otherwise why not leave the recalcitrant deadbeats? Sure the Germans would lose some euros upfront, but who's to say that the longer term investment wouldn't be worth it?  Also, the German banks could prepare for such an event by hedging their euro positions with euro puts or dollar call positions-- something they are likely doing already. 

The export issue is less tricky: decreased exports from Germany to the peripheral nations is occurring anyway since Greece and other PIIGS won't be spending on imports regardless of what happens to the makeup of the eurozone.  Greeks won't be in the market for BMW's and coffemakers any time soon because they're broke.  German manufacturers would do well to seek other markets for their goods regardless of the eurozone issue.

Perhaps this is navel-gazing and I can't say I've heard much chatter lately about Germany leaving the eurozone, but that certainly would be a Black Swan event and a giant disruption in the world markets.  


At the end of the day, the odds are that the eurozone will remain intact.

A longer discussion:

"If they are not willing to bailout the debtors, then the Germans should just leave the eurozone. Put up or shut up."