No way out of the eurozone

The Euro was introduced by 12 European Union member states in 2002 and now, almost 10 years and one major financial crisis later, people are again asking if the EU wouldn't be better off with a different currency.
Should it be the Neuro, a new Northern Euro, the Euro-light or should we just go back to the guilder, the mark and the lira? Experts say it would be far more expensive to abolish the euro than maintain it; the conclusion: there's no way out!
Earlier this week, the Dutch Central Planning Bureau (CPB) threw oil onto the flames being fanned by Euro-sceptics when it announced that the introduction of the euro had enriched the average Dutch person by just 500 euros.
According to CPB director Coen Teulings, it's not the single currency that is so important, the real key to prosperity is the single market:
"For the European Union and the Netherlands in particular, the single market is of exceptional importance and brings enormous advantages. In itself, the euro doesn't actually add that much. Introducing the euro didn't actually cost that much, but abolishing the euro would be enormously expensive."
Jarndyce and Jarndyce
If the euro were abolished it would lead to endless arguments and lawsuits over just which currency should be used to calculate the value of previously contracted goods and services and the value of investments. The number and length of the lawsuits would make Dickens’ Bleak House seem positively rosy.
The abolition of the euro would do enormous damage to the Dutch economy; 72 percent of Dutch exports go to European Union countries, while just 1 percent goes to China. Teulings refused to estimate the total cost of the abolition of the euro.
Fellow economist Jaap Koelewijn takes a few tentative steps down that slippery path: "If they decide to hold a referendum in the Netherlands on the euro then they'll have to make sure they ask the right question: we throw the Greeks out of the euro and everybody loses 15 percent of their income or we keep the Greeks in the euro and we all lose 5 percent."
Koelewijn is certain that abolishing the Euro is impossible:
"The introduction of a single currency has woven EU economies together so tightly and so intricately that it will be impossible to unpick all the threads. It would be like trying to separate a single egg after scrambling half a dozen in a bowl. There is no way back but the markets just won't accept that hard message. We've caught ourselves in a snare of our own devising; we knew the net was there but we marched gaily down the garden path and straight into the trap. The more we wriggle and thrash about, the tighter the snare becomes."

[related-articles]Chaos
Mark Cliffe, chief economist at ING Bank, investigated the risks and costs last year. One of the big risks is that the dissolution of the Eurozone would have a knock-on effect and disrupt the internal market and free trade agreements. Eurozone countries that withdraw from the single currency would be faced with a chaotic situation and would probably be forced to devalue their (new) currencies in order to make their exports cheaper. However, that would not improve their competitiveness.
It would be impossible to prevent ordinary people, investors and companies from withdrawing their capital and investments from the ex-Eurozone countries, even though governments would attempt to prevent capital flight. The chance is very real that the free, internal market would be jeopardised.
Cliffe: "The Netherlands would be extremely vulnerable in such a situation because the country is a victim of its own success. Over the last 10 years, the Dutch exported far more than they imported. The funds generated by a trade surplus were of course invested. So banks, pension funds and insurance companies have had mountains of money to lend to foreign countries over the last decade and they'll have a huge problem if those countries suddenly drop out of the euro."
Pointless
According to research conducted by Cliffe earlier this year, a Eurozone implosion would cut production in the EU by about 10 percent. That is far more than the shrinkage caused by the 2008 credit crisis. If Greece withdraws from the Eurozone, the economic consequences for Athens would be disastrous but the consequences for the rest of the Eurozone and the wider EU would be restricted to a few percent.
At the moment, it's an illusion to believe that Greece can withdraw from the euro in a controlled and orderly fashion without panicking the markets and spreading financial chaos to the weaker Eurozone countries. It also makes any estimates about the cost of abolishing the euro or introducing a new currency almost impossible and really quite pointless.
(jric/rk/tt)