Abolishing euro would boost recovery, says study

Breaking up the euro and resurrecting national currencies would be good for eurozone countries, according to a new report by Capital Economics which goes against the accepted wisdom that such a move would be a disaster.

The research consultancy says that the problem is Germany, which refuses to help out struggling countries such as Greece and Portugal by increasing demand. Instead the country runs a huge trade surplus which is of no benefit to Germans or other countries.

"The eurozone with Germany at its core operates as a system with a strong deflationary bias – one in which the whole burden of adjustment falls on deficit countries obliged to take strong deflationary action. As long as the eurozone continues to play by these rules, there is no alternative to many years of economic pain," the report says.

Portugal, Ireland, Greece and Spain have all been forced to slash their national budgets in order to remain within the eurozone, but if these countries instead left the euro, their national currencies would fall in value, giving them the competitiveness they need to export their way out of recession.

And it's not just the weak, smaller countries. The report also advocates the restoration of the German mark. This would wipe out Germany's trade surplus and boost domestic demand – to everybody’s benefit.

Read a full report at the Observer. ·