MUNICH – The debate about whether Greece should leave the eurozone has revived the idea that Germany, and other similarly strong economies, would best serve the rest of the continent if they were the ones to exit the monetary union. But, though that notion may win some applause, implementing it would be shortsighted, impractical, and economically dubious.
For starters, it would not be easy to extricate Europe’s largest economy from the single currency. Any serious discussion of such an objective would cause chaos in financial markets, given the many uncertainties attached to the process.
Even more important are the argument’s economic flaws, three of which are immediately apparent. First, the proponents of a German exit put far too much faith in the power of weak currencies to fuel an economy. They argue that if Germany left, the rest of the eurozone would devalue and that this devaluation would restore growth. This is unlikely.
Before the introduction of the euro, countries such as Italy, Greece, Spain, and Portugal – and until the 1980s, France as well – regularly devalued their currencies. The result was inflation with little growth. It was precisely the painful consequences of their sliding currencies that enticed these countries to join a monetary union with Germany.