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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."
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
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