Imagine that Greece, Portugal, Ireland and Spain left the euro tomorrow. Somehow they did it so cleanly, so smoothly, that there wasn’t a financial run. Would that be good for Germany? No, it would be very bad for Germany.

Putting the desire Germany has, and the effort it’s put into creating and leading the euro zone, if the weaker economies leave the euro, then, as Gavyn Davies says, the value of the euro will rise. And that would mean Germany’s exports become less competitive, dealing a blow to its economy. And in the real world, Greece and Portugal and Ireland and Spain would be dealing with huge financial crises, and the United States would likely be back in recession, and the crisis would be battering China’s economy. So at the same time as Germany’s exports are becoming more expensive, global demand for exports would be falling. Bad, bad, bad for Germany.

Conversely, imagine that a strong economy like the Netherlands leaves the euro zone but Germany doesn’t. In that case, the value of the euro would fall, and the value of German exports would rise.

Which is all to say that if the euro zone breaks up, then the way in which it breaks up can have dramatically different effects on the value of the euro, and thus on the various interested economies. For instance: a stronger euro is probably better for us, as it makes our exports more competitive. Davies even made a flowchart:


(Gavyn Davies/Financial Times)

By the same token, if Greece and Portugal and Spain had been outside the euro zone, their currencies would have fallen, boosting both their exports and their economies. “Rather than condemning lazy Southerners, Germany should share the loot,” concludes Mallaby.