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Migeru: In particular, why do so many Germans, in particular from the CDU, want to kick Greece out of the Euro?

Because they don't want to use their hard-earned money to bail out (what they see as) a bunch of dishonest and incompetent spendthrifts?

But according to Barry Eichengreen (cited by Krugman in his column), exiting the euro (whether voluntarily or involuntarily) would spell unambiguous economic doom for a country.  In particular,

In 1998, the founding members of the euro-area agreed to lock their exchange rates at the then-prevailing levels. This effectively ruled out depressing national currencies in order to steal a competitive advantage in the interval prior to the move to full monetary union in 1999. In contrast, if a participating member state now decided to leave the euro area, no such precommitment would be possible. The very motivation for leaving would be to change the parity. And pressure from other member states would be ineffective by definition.

Market participants would be aware of this fact. Households and firms anticipating that domestic deposits would be redenominated into the lira, which would then lose value against the euro, would shift their deposits to other euro-area banks. A system-wide bank run would follow. Investors anticipating that their claims on the Italian government would be redenominated into lira would shift into claims on other euro-area governments, leading to a bond-market crisis. If the precipitating factor was parliamentary debate over abandoning the lira, it would be unlikely that the ECB would provide extensive lender-of-last-resort support. And if the government was already in a weak fiscal position, it would not be able to borrow to bail out the banks and buy back its debt. This would be the mother of all financial crises.

Are those Germans so indignant at Greece that they would destroy the country financially and economically?

The march of civilizations is a series of defenses that man has put up against the dread of pure existence.

by marco on Fri Feb 19th, 2010 at 03:34:22 AM EST
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