The Local, a website with German news in English reports Economists warn against German euro exit.
“Even a believable rumour that Germany would exit the euro would result in a massive capital flight from the countries of southern Europe to Germany.”
The southern European banking system would then collapse, bringing down entire economies with them, Schmieding said.
The consequences for Germany would be severe. The crisis countries could no longer pay back their debt and Germany’s important export markets would drop off. On top of that German taxpayers would be burdened with immense costs, he said.
On the other hand if you add up the expected growth advantages of euro membership between 2013 and 2025 there would be a profit of nearly €1.2 trillion – or about half Germany’s gross domestic product in a year.
Thomas Straubhaar of the Hamburg HWWI economic institute thinks a return to the D-mark would be “a worst possible scenario.”
“An upward valuation of the D-mark and an accompanying devaluation of the euro would result in a massive debt forgiveness of all other euro-countries – with the costs of that picked up by Germany. This could lead to a currency war and the end of monetary stability.”
Complete Rubbish
As is typically the case in such articles, the eurozone proponents ignore the costs of staying in the euro and overly trump up the benefits. The article perpetuates the myth that German taxpayers will suffer the consequences of a breakup, but suffer no costs if the eurozone stays intact.
Nothing could be further from the truth. As I have pointed out on many occasions, Germany is going to pay a steep price either way, and so will Europe.
The cost to Europe on the current path will be another decade of Southern European depression, resentment, and capital controls. Somewhere along the line, citizens in one or more countries will decide they have had enough, and vote to exit the Euro anyway.
It is a huge mistake to believe Germany can impose its will on Southern Europe forever while not paying through the nose with eurobonds or other transfer mechanisms. If Germany returns to the D-mark, it will get paid back in cheaper Euros, but it least its stands a chance of getting paid back.
On the other hand, target-2 imbalances are so great the cost of a destructive piecemeal splintering of the eurozone coupled with outright default, will be much higher.
Many economists don’t see this simply because they do not want to.
Source: Mish's Global Economic Trend Analysis
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