Currency Disunion

By Josh Adler

The article chosen this week is about the question of whether the European Union should keep the Euro currency. These groups of countries are tied together because of the common currency. The creators of the Euro believed that the Euro would behave like the dollar. The Euro can create internal devaluation which would decrease prices and wages. This has created inflated unemployment in Greece and Spain where unemployment is above 20 percent. Angela Merkel , the Chancellor of Germany states that removal of the Euro would be catastrophic. In England, there is an economic think-tank that offers a $400,000 prize for the best plan to manage a break-up of the euro. Many of the Euro countries contain high debts and the devaluation for Greece would increase the burden of euro-denominated debt. Foreign bonds would have to be restructured and the debt is necessary for recovery. According to The Economist the best option would be to abolish the euro once a country leaves which will invalidate all euro contracts.

This situation is serious and it seems as if there is no way to solve the Euro crisis without pulling all the countries in the EU into a recession. I believe that the EU is avoiding the inevitable and that the Euro needs to be restructured. The European Union needs to determine the probability of keeping the European Union together and the reproductions of removing the members of the EU. I believe that if the EU separates then the strongest countries should leave first thereby saving themselves from any economic turmoil. The European Union could still exist however I believe there needs to be more strict requirements. It is clear that the European Union has made it too easy to be a member. Countries should undergo a financial stress test similar to the tests given to banks. This would hopefully decrease the chance of default and probability of systemic risk.

Economist Article: http://www.economist.com/node/21552250