UC Berkeley economist Barry Eichengreen was on the web site Five Books a few weeks ago, sharing his recommendations for the best five books on the Euro. His recommendations are:
Postwar: A History of Europe Since 1945, by Tony Judt
The Euro: The Politics of the New Global Currency, by David Mars
Varieties of Capitalism, by Peter Hall and David Soskice
The Euro: The First Decade, by Marco Buti
The Breakup of the Euro Area, by Barry Eichengreen (in Europe and the Euro by Alberto Alesina and Francesco Giavazzi)
The discussion with Eichengreen on the last selection, his 2007 “Breakup” article, is especially interesting for those who have been following the Euro crisis. According to Eichengreen, he chose the article because the question of whether the euro area could break up is currently on everyone’s minds. His conclusion in 2007 was that:
countries with serious financial problems, like Greece, and, equally, countries fearing that they would have to pay for those financial problems, like Germany, would both be extremely reluctant to abandon the euro. Doing so would be equivalent to abandoning the whole European project, which, for political reasons, I regard as bordering on the inconceivable.
Also, if a crisis country abandoned the euro in order to reintroduce its own national currency with the goal of restoring its competitiveness, it would be creating more problems for itself than it solved. The more I contemplated scenarios of possible exits from the euro, the more I concluded it wouldn’t happen.
Eichengreen says that, in hindsight, he was both right and wrong:
I was right in that, yes, if the Greek government were to announce tomorrow that it had decided to reintroduce the drachma, it would precipitate the mother of all financial crises. Everyone would know that its intention was to depreciate the new drachma, so in the first minute everyone would rush to get their money out of the country, out of its banks, and out of its bond market. The result would be the biggest bank run and financial crisis the world has ever seen. This danger is a formidable deterrent to even contemplating going down this road. So I think the argument I made in 2007, that attempting to exit the euro area would be the equivalent of burning down your own house in order to find a way out, was exactly right. (emphasis mine)
But:
I was wrong in that, as Paul Krugman observed earlier this year, if the house is burning down anyway, then the normal advice not to play with matches loses much of its force. If there’s a run on your banking system anyway, then the deterrent to action no longer applies. If there’s a run on your banking system and you have to close down your banks and financial markets anyway, you may want to take that opportunity to reintroduce your own currency. I still don’t think that things will be allowed to get to this point, but I no longer attach a zero probability to a country’s exiting the euro – just a close to zero probability. Never say never, but I still believe that the euro is an example of a path-dependent historical process that is unlikely to be reversed. (emphasis mine)
The whole interview is quite interesting.
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