People have argued that if the rich countries (sometimes just Germany) left the Euro the resulting dislocations would be much smaller:
German departure would be less disruptive than Grexit for three
First , a Greek devaluation would trigger capital flight from the next
weakest country – Spain, then Italy and France. Germany would not
create such domino effects. Once the Deutschemark was restored and
revalued, there would not be a “next strongest” country to attract
capital flight. Of course, some people might still send their money
from Italy or France to Germany, to speculate on further revaluation,
but that would be no different from investment flows out of Europe at
present into dollars, pounds or Swiss francs.
Second, and most crucially, the euro zone would become a more credible
and coherent unit without Germany. Liberated from German obstruction,
the ECB would be able to follow the examples of the U.S., Japanese,
British and Swiss central banks, using quantitative easing to bring
down interest rates to zero at the short end and to around 2 percent
on long-term bonds. Just as important, the euro governments could
finally form a genuine fiscal union, using the entire fiscal capacity
of the euro zone to back jointly guaranteed eurobonds. The euro zone
could then be treated again as a single economic unit, comparable to
the U.S., Japan or Britain – and in terms of key fiscal ratios it
would score well. Public deficits in euroland ex Germany were 5.3
percent of GDP in 2011, according to the IMF, compared with roughly 9
percent in Britain and 10 percent in the U.S. and Japan. Gross debt
(including financial bailouts) was 90.4 percent of GDP, against 98
percent, 103 percent and 205 percent in Britain, the U.S. and Japan,
respectively. Trade deficits were much smaller than in Britain or the
U.S. In short, euroland without Germany would be far from bankrupt –
and the key reason for the euro crisis isn’t lack of competitiveness
but Germany’s refusal to mutualize and monetize public debts.
Third, a euro break-up caused by Germany withdrawing would be far less
chaotic from a legal standpoint than a break-down in which the euro
disintegrated as weak countries were pushed out. The euro without
Germany would remain a legal currency, governed by the same treaties
as before. International contracts in euros would be legally
unaffected, but simply devalued in terms of new German marks or
dollars, just as British contracts were devalued when the pound fell
from $2 to $1.40 from 2008 to 2009. Only contracts within Germany
governed by German domestic law, for example retail bank deposits and
wage deals, would be redenominated into marks. The German government
would face no legal challenge if it decided to save money by repaying
bonds in devalued euros (as specified in the contract) instead of
converting them into marks (as speculative investors might hope).
A German exit from the euro could be relatively easy By Anatole Kaletsky
IU.eu: Are there any other ways out of the current mess?
Gloy: Yes, I think the least painful way out is for the major creditor
countries—Germany and the Netherlands—to leave the euro first, before
everything else crumbles.
These two countries could create a new currency, called the neuro, or
Northern Euro, for example. This would make German savers happy, while
taking the pressure off the remaining members of the single currency.
Over time the neuro would probably appreciate, and holders of the euro
would be free to switch some of their assets into it.
IU.eu: How likely is this to occur?
Gloy: Given the current stance of EU politicians and central bankers,
it’s very unlikely. But it’s the least worst of the outcomes, by far.
From Euro To Neuro?
But are there any modern examples of currency unions breaking up in an orderly manner with minimal economic disruption? I can think of some currency pegs that ended without major harm but I can't think of any actual unions that ended without doing so. The rubble union dissolving might not have been a huge deal but only because the other changes to the affected countries were enormous. Maybe the dissolution of the Scandinavian Monetary Union in 1914 would qualify but WWI loomed large in that decision. War, financial crises, and depression do see to be the most frequent fellow travelers with dissolution of currency unions. Perhaps that's not because dissolution is horrendous so much as it is a high risk, relatively low reward strategy that is only worth trying when things are already terrible.