October 27, 2014
Matt O’Brien gave readers a thoughtful discussion on how the euro zone’s stagnation is likely to persist for the indefinite future, primarily because Germany is acting to obstruct any serious efforts at stimulus. However at one point the logic gets a bit weak.
In laying out the various options for promoting stronger growth O’Brien suggests that Mario Draghi, the head of the European Central Bank could try to push ahead with quantitative easing even without the support of Germany. He says this could prompt Germany to take legal action and it “might even threaten to leave the euro zone over it.”
If Germany left the euro zone, the problems of the other countries would be largely over. The euro would presumably fall in value against the new deutschemark, allowing the countries of southern Europe to quickly regain their competitiveness against Germany. The resulting reduction in their trade deficit would be a major boost to growth and employment. And this could be done without the financial disruptions that would be caused by the southern European countries leaving the euro.
So the question is, if Germany threatened to leave the euro zone, why wouldn’t the other countries just say “please do?”
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