A Divorce Settlement for the Eurozone
By Nouriel Roubini, Professor of Economics and International Business & Arnab Das
The eurozone still lacks essential features of monetary unions that have stood the test of time; and planned reforms may exacerbate latent fiscal, banking and external imbalances, leaving it less, rather than more, resilient to regional shocks.
Splitting up may be hard to do, but it can be better than sticking to a bad marriage. The periphery debt crisis threatens to engulf the core in huge bank capital shortfalls and fiscal liabilities, trapping both in protracted stagnation. This reflects possibly intractable eurozone design flaws. So we propose the following amicable divorce settlement.
Countries leaving the eurozone must rebalance away from growth led by debt, towards export- and income-led growth. Members of a “rump” eurozone should rebalance toward domestic demand. The EU free trade arrangement is critical to this end. Ideally, five distressed peripherals – Portugal, Ireland, Italy, Greece and Spain – would exit, negotiating bridge financing.
Read full article as published in the Financial Times.
More Opinions from Nouriel Roubini
- "Back to Housing Bubbles," 11.29.13
- "Euro Marriage in Peril," 11.27.13
- "Bubbles in the Broth," 10.31.13
- "Autumn's Known Unknowns," 8.31.13
- "Trouble in Emerging-Market Paradise," 7.22.13
- "After the Gold Rush," 6.1.13
- "The Global Economy on the Fly," 4.1.13
- "Ten QE Questions," 2.28.13
- "The Economic Fundamentals of 2013," 1.21.13
- "US Has Been Let Down by Its Leadership," 1.2.13
- "Greece’s Private Creditors Are the Lucky Ones," 3.9.12
- "Italy’s Debt Must Be Restructured," 11.29.11
- "Why Italy’s days in the eurozone may be numbered," 11.10.11
- "Greece should default and abandon the euro," 9.19.11