Joachim Voth Tells the Truth and Shames the (German) Devil

Echoes of Japan, echoes of the Great Depression. One of the few economists who knows history closes a post by presenting the proper context for the choices:

A quick exit [by Ireland, from the Euro] may still be better than a decade of slow, grinding deflation combined with Zombie banks and Zombie household balance sheets being kept on artificial life support before the inevitable rise in interest rates at some point pulls the plug.

When Britain left the gold standard in 1931, the governor of the Bank of England famously declared (having been aboard a ship and out of contact when the decision was made): “I didn’t know we could do that.” Leaving the euro may seem similarly unimaginable to many, but it may be just as feasible. In the 1930s, cutting the link quickly led to a recovery of demand, by reducing deflationary pressures. Far from the shattering blow to confidence feared by many, exiting the gold standard was actually great for business. Leaving the euro may be every bit as good.

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