Patrick Artus, analyst at Natixis, points out that the Eurozone’s struggling economies are being faced with a tough decision of whether to stay in the euro or leave the euro.
Key Quotes
“Struggling euro-zone countries (Italy, possibly even France) are now faced with the choice between:
Leaving the euro and devaluing their exchange rates, which would lead to major difficulties and possibly defaults among all economic agents (government, companies, banks) with external debt in euros.”
“Staying in the euro and enduring:
– The inability to monetise fiscal deficits and therefore a sharp rise in interest rates whenever fiscal policy becomes more expansionary;
– The inability to correct a cost-competitiveness disadvantage other than by carrying out an internal devaluation, i.e. by reducing wages;
– Competition from countries that have carried out internal devaluations (like Spain).”
“Leaving the euro would therefore be disastrous, but staying in the euro may also be disastrous.”
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