The Eurozone Heads for Breakup

Greece, a nation of 11.2 million, owes more than €300 billion. Restructuring the debt is inevitable, notes Nouriel Roubini in a blog posting for the Financial Times. The only unknowns are how and when. Europe united behind the euro as a single currency before enacting structural reforms and streamlining monetary, fiscal and exchange-rate policies, Roubini explains, adding that “early interest rate convergence allowed a greater divergence in fiscal policies.” Political and fiscal union did not keep pace with currency union, and now taxpayers in the strong economies like Germany balk at bailing out spendthrifts in Greece. He argues that currency devaluation, deflation and productivity increases are unlikely options, and his cost-benefit analysis concludes: “there is really only one other way to restore competitiveness and growth on the periphery: leave the euro, go back to national currencies and achieve a massive nominal and real depreciation.” – YaleGlobal