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Why would Greece and Italy, or Greece and Cyprus and Malta be better off with a currency union than all alone?

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Sun Aug 28th, 2016 at 01:57:39 PM EST
[ Parent ]
Combined, their currency and economy would have greater weight and be less susceptible to gaming by hedge funds. Joining the Asian Clearing Union would have other advantages than just being able to clear payments without interference by the BIS, etc. It also would offer opportunities for investment in a SEURO zone by all members of the ACU, not least because of the signal it would send about alignment, which, itself, likely would have a paralyzing effect on other members of the EMU, NATO and creditor nations.

Another large effect would be the very existence and the policies of a SEURO Monetary Union. The SEURO would almost certainly be devaluated with respect to the EURO and fiscal policies would be more favorable to growth in the SEURO economies. This would improve the terms of trade for existing northern trade partners while creating new markets in states party to the ACU.

But, presuming this was done in conjunction with a financial collapse in the EU, it would provide a refuge for other EU trade deficit nations wanting a safe harbor for their own currency and monetary policies favorable to their own needs.

But the biggest effect might well be on the perceptions of German leaders. They would be faced with the danger of having numerous trade deficit members of the EU joining the SEURO and of the EMU being reduced to a union containing mostly trade surplus countries and Germany would rightly be concerned about where that would lead. As Frank has noted, there is much that Germany could do to change its relations with Greece and Italy.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Aug 28th, 2016 at 03:04:28 PM EST
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But you are proposing to join countries of very unequal sizes. Greece would dominate a Greece - Cyprus - Malta union, and Italy would dominate an Italy - Greece union. Politically, that is unsustainable.

And Cyprus and Malta are only in the EU as a sop to the UK to compensate the addition of Germany's sphere of influence in 2004.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman

by Migeru (migeru at eurotrib dot com) on Sun Aug 28th, 2016 at 03:29:00 PM EST
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