Dismally unrealistic

Richard North picks up the ING scenario of the breakup of the eurozone here, with links to three papers which have reported it.

Shock, it would have big consequences.If one country leaves, its economy will suffer. Well, a PIIG would only leave if its economy was in deep, deep trouble anyway. But if a small PIIG leaves, that will be a minor ripple for the remaining eurozone - or a small storm quickly over.

But the eurozone is not going to fragment into individual countries. It's the alarmist scenario and it's unrealistic.

What the study also seems to lack is a comparison of the damage if the eurozone continues. Individual countries would certainly suffer a big bang on leaving, but then they would have the flexibility to rebuild with their devalued currencies, rather than grinding on in depression, with a currency that was overvalued and interest rates that would be inappropriate most of the time.

If Germany left, its currency would probably appreciate. Probably some other countries would want to continue in a smaller currency union with it. And if Germany stays in the eurozone, how much more largesse will it have to spread over coming decades?

There could be an argument that short term shock would be better for everyone than long term costs and depressions. And that's just the economic dimension. How well will new democracies stand up to prolonged depressions brought on by eurozone membership?

Economics is often called the dismal science. This isolated and unrealistic scenario doesn't seem to have modelled the economics of any (more realistic) alternatives.

A dismal and unrealistic piece of work.