German exit from euro ‘realistic prospect in 2011’
Weak members should stay in the euro - Germany should resurrect the Deutsche Mark, says analyst
First Greece fell, then Ireland. Now the cost of borrowing for the Portuguese government is rising - a sign that it, too, will soon require a bailout. The PIIGS (Italy and Spain are the other two) are falling like dominoes.
So far, much of the 'Dooomsday scenario' talk has revolved around the seemingly inevitable exit from the euro of these weaker members.
A return to the drachma or the punt, so the argument goes, would allow Greece and Ireland to devalue their currencies and make their debts more affordable.
But now a new, more fanciful, solution has been floated: an exit from the single currency by Germany and a few sensible friends, such as Austria and Finland, who would resurrect the mighty Deutsche Mark.
Germany's presence in the euro is a problem for the PIIGS, since the export powerhouse keeps the value of the single currency high, making it difficult for the likes of Greece and Ireland to escape their crises by increasing their own exports.
Without Germany, the euro would fall in value, giving a much-needed boost to the competitiveness of weaker members.
Graham Turner, an economic consultant at GFC Economics, says a German-led breakaway is a "realistic prospect for 2011".
He told the Guardian that he thinks the Netherlands, Austria and Finland would be suitable partners and that their exit would allow the remaining 12 members to devalue the euro and escape the sovereign debt crisis.
"It has to be a better option than the present straitjacket of a single currency," he says.
A major stumbling block is that the current level of the euro suits Germany very well - and its banks have piles of euro-denominated
investments: a devaluation would be a big hit for them.
But it's an idea that could gain traction in the coming months. The latest word is that if Portugal falls, there won't be enough money in the EU bailout kitty to help Spain if it follows suit. ·
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