(Der Spiegel) The Disastrous Consequences of a Euro Crash

Posted by Kendall Harmon

Investment experts at Deutsche Bank now feel that a collapse of the common currency is "a very likely scenario." German companies are preparing themselves for the possibility that their business contacts in Madrid and Barcelona could soon be paying with pesetas again. And in Italy, former Prime Minister Silvio Berlusconi is thinking of running a new election campaign, possibly this year, on a return-to-the-lira platform.

Nothing seems impossible anymore, not even a scenario in which all members of the currency zone dust off their old coins and bills -- bidding farewell to the euro, and instead welcoming back the guilder, deutsche mark and drachma.

It would be a dream for nationalist politicians, and a nightmare for the economy. Everything that has grown together in two decades of euro history would have to be painstakingly torn apart. Millions of contracts, business relationships and partnerships would have to be reassessed, while thousands of companies would need protection from bankruptcy. All of Europe would plunge into a deep recession

Read it all.

Filed under: * Culture-WatchGlobalization* Economics, PoliticsEconomyConsumer/consumer spendingCorporations/Corporate LifeCredit MarketsCurrency MarketsEuroEuropean Central BankThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--Foreign RelationsPolitics in General* International News & CommentaryEurope--European Sovereign Debt Crisis of 2010

Posted June 25, 2012 at 12:15 pm [Printer Friendly] [Print w/ comments]

1. Terry Tee wrote:

This article is surely slightly off target.  Europe lived with multiple currencies before and could do so again.  Moreover, the more likely scenario is the Euro retreating to a ‘heartland’ of Benelux, France and Germany. 
The more serious issue would surely be countries defaulting on their debts.  Greece, Spain, Cyprus, Portugal, are all under the water with regard to capital repayments.  Banks in other countries would face having to write off debts and rebalance their books, which would depress economic activity.  Even so I wonder about the prediction of ‘deep recession’.  As with climate change, one wonders at the pronouncements of apocalyptic gloom from those who imagine that there is only one way of doing things.

June 25, 2:09 pm | [comment link]
2. APB wrote:

Reversion to “local” currencies will give a perfect, and probably irresistible, opportunity for the various governments to inflate their way out of some of the debt by selecting extremely weak exchange rates.  That will have global consequences, all bad.

June 25, 5:16 pm | [comment link]
3. Terry Tee wrote:

APB:  Yes, but flexible exhange rates can restore competitiveness and thus encourage trade.

June 25, 8:03 pm | [comment link]
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