Guest post written by my colleague Joachim Fritz-Vannahme
At present, we see a hot debate about the future of the eurozone with an abundance of different scenarios – not least that of its breakup. When in March 2011, we issued our report “Making the European Union work. Issues for Economic Governance Reform“, this was a probability we did not bear in mind, of if so, we would certainly not have voiced it then.
Ansgar Belke, professor of macroeconomics at the University of Duisburg-Essen and Research Director for International Macroeconomics at the German Institute for Economic Research (DIW), Berlin, was one of the members of the international experts group on the basis of whose expertise the report came into being in times of rapid changes in the EU economic set-up.
This summer, as a follow-up to our work, we requested him to tackle “doomsday”, i.e. describe and discuss potential causes and motivations for a breakup of the euro area. For this purpose, he differentiates between the departure of weak and strong countries, and examines the impact of the reintroduction of a national currency on domestic debt, the domestic banking sector, EU membership and the freedom of trade. In his paper, he also briefly analyzes the social and political costs of the accompanying social disorder.
We are grateful to Professor Belke for this contribution, which closely follows after the recent “fiscal union scenario” paper by Professor Begg.
We hope that the paper can also give interesting impulses to your current work.