My plan for Europe. In comments JackD asked me what I thought of Italy leaving the Eurobloc. The problem is that it is easier said than done — the instant it becomes a serious possibility there will either be the mother of all bank runs or a banking holliday. Everyone (including your humble blogger) will want to get our hands on paper Euros which can’t be converted into Lire or Italos or whatever. So it has to be done quickly and by surprise — oh and the new currency has to be printed (quickly and secretly). Not going to happen. Even Greece stuck with the Euro in spite of absolutely appalling (unnecessary) costs.
On the other hand, Germany could leave the Euro bloc. Germans never liked the Euro anyway. I trust they would gladly wait for a chance to get Deutschmark’s again (actually German kids probably don’t remember the DM but they don’t have lots of money anyway).
I’m sure the DM would appreciate compared to the Euro. This would reduce Germany’s huge current account surplus and, therefore, also reduce Germany’s huge and very dangerous capital account deficit. As is, they are buying foreign assets or loaning to foreigners who, sometimes, pay them back. Germans recognize that this is a problem — they are close to obsessed.
Aside from the effect on employment, currency appreciation is fun — things get cheaper. Germany is really actually at roughly full employment. Their main problem is Putin no focus on economics is the rest of the world finances its current account deficit with Germany by borrowing from German institutions and German’s worry that Greece won’t be the last debtor to become insolvent.
I admit I want Germany out of the Euro bloc so they can’t impose austerity on other countries, but, the point is that they feel they have to do that to protext the assets which they accumulate due to the missalignment of the German Euro and the normal country Euro (that is the weirdly low price level in Germany).
On the other hand, uh I don’t see anything on my other hand. What’s the problem ?
We should re-Gauss Europe