Soviet Union Breakup

When it comes to the crunch with the euro, economics will trump law

There is no provision in the EU treaty for a country leaving the eurozone. This was deliberate. It was intended to make clear that the euro area has been forever - like the Soviet Union and the Holy Roman Empire. But in fact, you can not legislate for changes in economic conditions or changes in people's attitudes.

Countries left currency unions before. When the Soviet Union broke up in 1991, several new currencies had to be invented out of nowhere. Yes, there was chaos - and it would surely be chaos for a while in the euro area. But it could be done.When it comes to the crisis, what is and is not in the European treaties are no longer relevant. Economy will trump the law.

However, to avoid precipitating a banking collapse, never mind other kinds of economic turmoil, you need absolute secrecy and surprise. After all, if people thought that such a change was coming, they would try to withdraw money from banks vulnerable countries and this could cause a banking collapse and a severe economic crisis.

How are the criteria of secrecy and foresight to be reconciled?Economists who work for governments in vulnerable countries and / or central banks would beaver away in secret, the preparation of Plan B, which should be preserved in the metaphorical equivalent of a locked drawer until that the time has come. But the chances of keeping secret the work is pretty slim.

Even so, the idea that these difficulties will prevent a country leaving the euro or break absurd. What must happen will happen. If a country decides to leave his government would announce that the national contracts in euros would now be converted to the new domestic currency.

It would probably also announce a kind of default. The idea that government can not do that when it is no longer the primary deficit, so it does not have to rely on the financial markets, is off the mark. This constraint does not apply to countries in a monetary union because they can not print their own money. But once a country is out of a monetary union its own central bank can buy government debt financed by issuing their own money.

Bring Out Your Dead – UBS Quantifies Costs Of Euro Break Up ...

Submitted by Tyler Durden

zerohedge.com

Whenever a major bank published a report saying a particular course of action is too costly, too prohibitive, too blonde, or just too impossible, it is almost guaranteed that it is precisely during the action to be taken about. Therefore, all non-euro skeptics are encouraged to protect their eyes and look the report just released by UBS (3 months of soaring Libor USD fame) entitled "Break Up Euro - Consequences."UBS sets up the perfect straw man as follows:" In the current structure and with the current members, the euro is not working. Either the current structure will change, or the present composition will change. "Up 'Here all is well. Yet when he gets scared is when UBS quantifies the real opportunity cost of one or more countries to leave the Euro. Particularly in Germany. "If a stronger country, like Germany to leave the euro, the consequences would include corporate default, the recapitalization of the banking system and the collapse of international trade.If Germany were to leave, we believe that the cost to about EUR6, 000 to EUR8, 000 for each adult and child in the German first year, and a range of EUR3, 500 to EUR4, 500 per person year thereafter. This is equivalent to 20% to 25% of GDP in the first year. "It would also mean the end of the UBS, but we are moving away. Where it becomes even more frightening is when UBS, like many other banks to come, succumbs to the trope mutual assured destruction made so popular by Ole 'Hank Paulson: "The economic cost is in many ways, the least of the concerns of investors should have about a rupture.The fragmentation of the euro would have political consequences. Europe's "soft power" influence internationally stop (like the concept of 'Europe' as an integrated political entity becomes meaningless).

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