May 25, 2010
While Mr Wyplosz refers to the single currency as "protecting" Greece from a currency crisis, I see it as preventing Greece from achieving a helpful increase in net exports by a natural currency depreciation.
In the case of Greece exiting from the euro area, the pain is bound to be acute. Devaluation may help restore current budget and external imbalances, but under extreme duress.
At this stage in the debate, both Mr Feldstein and Mr Wyplosz are focusing their arguments on Greece. They concur that some form of Greek debt default looks unavoidable. A crucial question is whether this would be more damaging for Greece in or outside the euro area. The voting so far is around 40% in favour of the motion and around 60% against it. Let’s see how opinion moves as each side clashes with the other.
On the motion at hand, only one conclusion is possible: the dollar area will fragment over the next ten years. Recent events have made it clear that the idea of monetary union is deeply flawed. Economic specialists have long pointed to the contradictions, but politicians pushed ahead for essentially non-economic reasons. We are now paying the price.