The "Anglo-Saxon" view of the euro zone is deeply mistaken

- "For several months, investors have been inundated with research from London and New York, explaining them that:
1) the peripheral euro-zone countries will default on their public debts;
2) the euro will disappear, as some countries want to regain their monetary freedom."
- "These arguments may seem rational:
1) some euro-zone countries’ debt ratios will be stabilised at very high levels, hence the need for large primary budget surpluses, which are detrimental for the economy. A partial default would prevent this;
2) some countries will have anaemic growth, or have worsened their industrial competitiveness significantly. A depreciation of their currency thus could be attractive;
3) the countries’ productive specialisations are very different, and this makes their membership of a currency area difficult in the absence of federalism."
- "However, the proponents of these arguments forget:
1) the Europeans’ political will to prevent a default and any development that would threaten the euro’s credibility and stability;
2) the massive costs that would be associated with
• any type of country pulling out of the euro;
• a sovereign debt default, given the structure of holding of these debts and the risk of contagion."
- "The "Anglo-Saxons" view of the euro is not sufficiently political and pragmatic to be correct."

Natixis Flash Economics 382 20100727

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