<p><strong>No Time To Argue</strong></p>

<p>Most importantly, there cannot be an "<em>18 months period of notice</em>". Tt has to be decided suddenly and there cannot be any period in which individuals could respond to the new plan by withdrawing their money and moving cash from one of the member countries to any of the others.</p>

<p><strong>New Currencies</strong></p>

<p>Each country has to have its own currency. These currencies should be free floating against each other, which on the other hand means that some will value up and some down. That is, Germany's new currency will probably value up against whatever Greece will have.</p>

<p><strong>Capital Controls</strong></p>

<p>Therefore, it will be of higher value to have your Euro exchanged for German money than for Greek money. Any bank account will have to immediately be translated into local currency. Also, no one will be allowed to move cash Euro between the member countries. </p>

<p>One way to immediately establish the new currency would be to simply <strong>stamp</strong> the old money with country specific stamps.</p>

<p><em>Citation</em></p>

<p>Note that Greek's new finance minister implied that their train of thoughts follows exactly these lines of thinking [my own translation]:</p>

<blockquote>
  <p>Greece is not going to leave the currency union, as it cannot go back
  to the path of development on which it was on, hadn't it joined the
  union. An exit would lead to chaos in any case: For the moment, there
  is no new Greek currency as a new Drachm. Preparations for the
  introduction of such a currency would take months and would have the
  same effect as announcing a depreciation several months in advance.
  But you can only have a depreciation over night and unexpectedly,
  otherwise there are massive movements of capital flight/export.</p>
</blockquote>

<p><a href="http://www.faz.net/aktuell/wirtschaft/eurokrise/griechenland/griechenlands-finanzminister-starke-sprueche-gegen-deutschland-13393858.html" rel="nofollow">From this german article</a>:</p>

<blockquote>
  <p>Die Währungsunion verlassen soll Griechenland nach den Worten von
  Varoufakis aber in keinem Fall. Denn damit könne das Land nicht auf
  den Entwicklungspfad zurückkehren, den es ohne Eintritt in den
  Euroraum genommen hätte. Ein Austritt habe auf jeden Fall Chaos zur
  Folge. Denn gegenwärtig gebe es keine griechische Währung wie eine
  neue Drachme. Vorbereitungen für die Einführung einer solchen Währung
  würden Monate dauern und hätten die gleiche Wirkung wie die
  Ankündigung einer Abwertung mehrere Monate im Voraus. Doch eine
  Abwertung könne es immer nur über Nacht und unerwartet geben, sonst
  gebe es riesige Bewegungen zum Kapitalexport, warnt er.</p>
</blockquote>

CC BY-SA 3.0
2015-01-27T16:23:55.310Z
Is is **possible** for the EU to decide anything without arguing for a long time?
Ian Ringrose
CC BY-SA 3.0
2015-01-27T16:24:46.523Z
The solution would be highly undemocratic. Thats the problem.
FooBar
CC BY-SA 3.0
2015-01-30T16:42:11.820Z
How would stamping currency work for balances in bank accounts? Is it based on where the bank is headquartered? How about mortgages, would that depend on where the house is, the branch you borrowed from, the bank you took it out from? What if another ban bought your loan and that was in a different country from the one that you borrowed the money initially from? That all seems very finicky.
BKay
CC BY-SA 3.0
2015-01-30T18:25:06.073Z
@BKay the point is "Thats how you can quickly create new currency (cash) without having it printed ex ante (and people knowing about it), not that the exchange rate would be 1:1.
FooBar
CC BY-SA 3.0
2015-01-31T08:47:37.103Z
I wonder what would happen to the TARGET2 balances between the central banks...
Corvus
CC BY-SA 3.0
2015-01-27T16:20:18.263Z
2015-01-30T14:26:38.123Z
2015-01-30T14:26:38.123Z
FooBar
<p>People have argued that if the rich countries (sometimes just Germany) left the Euro the resulting dislocations would be much smaller:</p>

<blockquote>
  <p>German departure would be less disruptive than Grexit for three
  reasons.</p>
  
  <p>First , a Greek devaluation would trigger capital flight from the next
  weakest country – Spain, then Italy and France. Germany would not
  create such domino effects. Once the Deutschemark was restored and
  revalued, there would not be a “next strongest” country to attract
  capital flight. Of course, some people might still send their money
  from Italy or France to Germany, to speculate on further revaluation,
  but that would be no different from investment flows out of Europe at
  present into dollars, pounds or Swiss francs.</p>
  
  <p>Second, and most crucially, the euro zone would become a more credible
  and coherent unit without Germany. Liberated from German obstruction,
  the ECB would be able to follow the examples of the U.S., Japanese,
  British and Swiss central banks, using quantitative easing to bring
  down interest rates to zero at the short end and to around 2 percent
  on long-term bonds. Just as important, the euro governments could
  finally form a genuine fiscal union, using the entire fiscal capacity
  of the euro zone to back jointly guaranteed eurobonds. The euro zone
  could then be treated again as a single economic unit, comparable to
  the U.S., Japan or Britain – and in terms of key fiscal ratios it
  would score well. Public deficits in euroland ex Germany were 5.3
  percent of GDP in 2011, according to the IMF, compared with roughly 9
  percent in Britain and 10 percent in the U.S. and Japan. Gross debt
  (including financial bailouts) was 90.4 percent of GDP, against 98
  percent, 103 percent and 205 percent in Britain, the U.S. and Japan,
  respectively. Trade deficits were much smaller than in Britain or the
  U.S. In short, euroland without Germany would be far from bankrupt –
  and the key reason for the euro crisis isn’t lack of competitiveness
  but Germany’s refusal to mutualize and monetize public debts.</p>
  
  <p>Third, a euro break-up caused by Germany withdrawing would be far less
  chaotic from a legal standpoint than a break-down in which the euro
  disintegrated as weak countries were pushed out. The euro without
  Germany would remain a legal currency, governed by the same treaties
  as before. International contracts in euros would be legally
  unaffected, but simply devalued in terms of new German marks or
  dollars, just as British contracts were devalued when the pound fell
  from $2 to $1.40 from 2008 to 2009. Only contracts within Germany
  governed by German domestic law, for example retail bank deposits and
  wage deals, would be redenominated into marks. The German government
  would face no legal challenge if it decided to save money by repaying
  bonds in devalued euros (as specified in the contract) instead of
  converting them into marks (as speculative investors might hope).</p>
</blockquote>

<p><a href="http://blogs.reuters.com/anatole-kaletsky/2012/06/27/a-german-exit-from-the-euro-could-be-relatively-easy/" rel="nofollow">A German exit from the euro could be relatively easy By Anatole Kaletsky</a> </p>

<blockquote>
  <p>IU.eu: Are there any other ways out of the current mess?</p>
  
  <p>Gloy: Yes, I think the least painful way out is for the major creditor
  countries—Germany and the Netherlands—to leave the euro first, before
  everything else crumbles.</p>
  
  <p>These two countries could create a new currency, called the neuro, or
  Northern Euro, for example. This would make German savers happy, while
  taking the pressure off the remaining members of the single currency.
  Over time the neuro would probably appreciate, and holders of the euro
  would be free to switch some of their assets into it.</p>
  
  <p>IU.eu: How likely is this to occur?</p>
  
  <p>Gloy: Given the current stance of EU politicians and central bankers,
  it’s very unlikely. But it’s the least worst of the outcomes, by far.</p>
</blockquote>

<p><a href="http://europe.etf.com/europe/features-a-news/7929-alex-gloy.html" rel="nofollow">From Euro To Neuro?</a> </p>

<p>But are there any modern examples of currency unions breaking up in an orderly manner with minimal economic disruption? I can think of some currency pegs that ended without major harm but I can't think of any actual unions that ended without doing so. The rubble union dissolving might not have been a huge deal but only because the other changes to the affected countries were enormous. Maybe the dissolution of the <a href="http://en.wikipedia.org/wiki/Scandinavian_Monetary_Union" rel="nofollow">Scandinavian Monetary Union in 1914</a> would qualify but WWI loomed large in that decision. War, financial crises, and depression do see to be the most frequent fellow travelers with dissolution of currency unions. Perhaps that's not because dissolution is horrendous so much as it is a high risk, relatively low reward strategy that is only worth trying when things are already terrible. </p>

CC BY-SA 3.0
2015-01-28T20:53:40.720Z
2015-01-28T20:53:40.720Z
BKay
<p>Let’s assume that the members of Euro zone all agreed that it would end in 18 months time with each country getting its own currency.</p>

<p>What process could be put in place to allow this to happen without causing of lots instability?  </p>

CC BY-SA 3.0
2014-12-30T17:05:22.347Z
What kind of "instability" do you mean? Could you explain.
Mathematician
CC BY-SA 3.0
2014-12-30T17:08:04.893Z
@Mathematician, runs on banks to get the money out in "hard" euros so it can be paid into a bank in a different country for example.    Or big swing in interest rates governments must pay to sell bonds.
Ian Ringrose
CC BY-SA 3.0
2014-12-30T18:23:02.173Z
Why would there be a run on banks if there was an 18 month notice of the conversion? Moreover, there is no such thing as a "hard" Euro. When the conversion to the Euros took place, the conversion rate was fixed (more or less) and written into contracts as such, so that no arbitrage opportunities existed. There was no run on banks or any "catastrophe" you seem to envision.
rocinante
CC BY-SA 3.0
2014-12-30T18:37:39.193Z
@rocinante,  Would you like all of your savings in the Greek currency?
Ian Ringrose
CC BY-SA 3.0
2014-12-30T18:54:02.520Z
Dude, the exchange rate is fixed, for all intent and purposes. There are no arbitration opportunities. Having your savings in drachmas (or dollars or euros) doesn't make it worth any "less". It's as silly as saying that Fahrenheit is worth more/less than Celsius.
rocinante
CC BY-SA 3.0
2014-12-30T20:34:10.287Z
@rocinante, but it stops being fixed on the day that the Euro end....
Ian Ringrose
<currency><uncertainty><euro-area>
How could the Euro zone be broken up in an ordered way?
Ian Ringrose
# How could the Euro zone be broken up in an ordered way?

(Asked by: username_0 on 2014-12-30)

Let’s assume that the members of Euro zone all agreed that it would end in 18 months time with each country getting its own currency.

What process could be put in place to allow this to happen without causing of lots instability?

**Tags:** currency, uncertainty, euro-area
> **Comments:**
> **username_1**: What kind of "instability" do you mean? Could you explain.  
> **username_0**: @Mathematician, runs on banks to get the money out in "hard" euros so it can be paid into a bank in a different country for example.    Or big swing in interest rates governments must pay to sell bonds.  
> **username_2**: Why would there be a run on banks if there was an 18 month notice of the conversion? Moreover, there is no such thing as a "hard" Euro. When the conversion to the Euros took place, the conversion rate was fixed (more or less) and written into contracts as such, so that no arbitrage opportunities existed. There was no run on banks or any "catastrophe" you seem to envision.  
> **username_0**: @rocinante,  Would you like all of your savings in the Greek currency?  
> **username_2**: Dude, the exchange rate is fixed, for all intent and purposes. There are no arbitration opportunities. Having your savings in drachmas (or dollars or euros) doesn't make it worth any "less". It's as silly as saying that Fahrenheit is worth more/less than Celsius.  
> **username_0**: @rocinante, but it stops being fixed on the day that the Euro end....  

---

## 2 answers

### Answer by username_3 on 2015-01-27. Score: 6

**No Time To Argue**

Most importantly, there cannot be an "*18 months period of notice*". Tt has to be decided suddenly and there cannot be any period in which individuals could respond to the new plan by withdrawing their money and moving cash from one of the member countries to any of the others.

**New Currencies**

Each country has to have its own currency. These currencies should be free floating against each other, which on the other hand means that some will value up and some down. That is, Germany's new currency will probably value up against whatever Greece will have.

**Capital Controls**

Therefore, it will be of higher value to have your Euro exchanged for German money than for Greek money. Any bank account will have to immediately be translated into local currency. Also, no one will be allowed to move cash Euro between the member countries.

One way to immediately establish the new currency would be to simply **stamp** the old money with country specific stamps.

*Citation*

Note that Greek's new finance minister implied that their train of thoughts follows exactly these lines of thinking [my own translation]:

> Greece is not going to leave the currency union, as it cannot go back
> to the path of development on which it was on, hadn't it joined the
> union. An exit would lead to chaos in any case: For the moment, there
> is no new Greek currency as a new Drachm. Preparations for the
> introduction of such a currency would take months and would have the
> same effect as announcing a depreciation several months in advance.
> But you can only have a depreciation over night and unexpectedly,
> otherwise there are massive movements of capital flight/export.

[From this german article](http://www.faz.net/aktuell/wirtschaft/eurokrise/griechenland/griechenlands-finanzminister-starke-sprueche-gegen-deutschland-13393858.html):

> Die Währungsunion verlassen soll Griechenland nach den Worten von
> Varoufakis aber in keinem Fall. Denn damit könne das Land nicht auf
> den Entwicklungspfad zurückkehren, den es ohne Eintritt in den
> Euroraum genommen hätte. Ein Austritt habe auf jeden Fall Chaos zur
> Folge. Denn gegenwärtig gebe es keine griechische Währung wie eine
> neue Drachme. Vorbereitungen für die Einführung einer solchen Währung
> würden Monate dauern und hätten die gleiche Wirkung wie die
> Ankündigung einer Abwertung mehrere Monate im Voraus. Doch eine
> Abwertung könne es immer nur über Nacht und unerwartet geben, sonst
> gebe es riesige Bewegungen zum Kapitalexport, warnt er.

> **Comments:**
> **username_0**: Is is **possible** for the EU to decide anything without arguing for a long time?  
> **username_3**: The solution would be highly undemocratic. Thats the problem.  
> **username_4**: How would stamping currency work for balances in bank accounts? Is it based on where the bank is headquartered? How about mortgages, would that depend on where the house is, the branch you borrowed from, the bank you took it out from? What if another ban bought your loan and that was in a different country from the one that you borrowed the money initially from? That all seems very finicky.  
> **username_3**: @BKay the point is "Thats how you can quickly create new currency (cash) without having it printed ex ante (and people knowing about it), not that the exchange rate would be 1:1.  
> **username_5**: I wonder what would happen to the TARGET2 balances between the central banks...  

---

### Answer by username_4 on 2015-01-28. Score: 4

People have argued that if the rich countries (sometimes just Germany) left the Euro the resulting dislocations would be much smaller:

> German departure would be less disruptive than Grexit for three
> reasons.
>
> First , a Greek devaluation would trigger capital flight from the next
> weakest country – Spain, then Italy and France. Germany would not
> create such domino effects. Once the Deutschemark was restored and
> revalued, there would not be a “next strongest” country to attract
> capital flight. Of course, some people might still send their money
> from Italy or France to Germany, to speculate on further revaluation,
> but that would be no different from investment flows out of Europe at
> present into dollars, pounds or Swiss francs.
>
> Second, and most crucially, the euro zone would become a more credible
> and coherent unit without Germany. Liberated from German obstruction,
> the ECB would be able to follow the examples of the U.S., Japanese,
> British and Swiss central banks, using quantitative easing to bring
> down interest rates to zero at the short end and to around 2 percent
> on long-term bonds. Just as important, the euro governments could
> finally form a genuine fiscal union, using the entire fiscal capacity
> of the euro zone to back jointly guaranteed eurobonds. The euro zone
> could then be treated again as a single economic unit, comparable to
> the U.S., Japan or Britain – and in terms of key fiscal ratios it
> would score well. Public deficits in euroland ex Germany were 5.3
> percent of GDP in 2011, according to the IMF, compared with roughly 9
> percent in Britain and 10 percent in the U.S. and Japan. Gross debt
> (including financial bailouts) was 90.4 percent of GDP, against 98
> percent, 103 percent and 205 percent in Britain, the U.S. and Japan,
> respectively. Trade deficits were much smaller than in Britain or the
> U.S. In short, euroland without Germany would be far from bankrupt –
> and the key reason for the euro crisis isn’t lack of competitiveness
> but Germany’s refusal to mutualize and monetize public debts.
>
> Third, a euro break-up caused by Germany withdrawing would be far less
> chaotic from a legal standpoint than a break-down in which the euro
> disintegrated as weak countries were pushed out. The euro without
> Germany would remain a legal currency, governed by the same treaties
> as before. International contracts in euros would be legally
> unaffected, but simply devalued in terms of new German marks or
> dollars, just as British contracts were devalued when the pound fell
> from $2 to $1.40 from 2008 to 2009. Only contracts within Germany
> governed by German domestic law, for example retail bank deposits and
> wage deals, would be redenominated into marks. The German government
> would face no legal challenge if it decided to save money by repaying
> bonds in devalued euros (as specified in the contract) instead of
> converting them into marks (as speculative investors might hope).

[A German exit from the euro could be relatively easy By Anatole Kaletsky](http://blogs.reuters.com/anatole-kaletsky/2012/06/27/a-german-exit-from-the-euro-could-be-relatively-easy/)

> IU.eu: Are there any other ways out of the current mess?
>
> Gloy: Yes, I think the least painful way out is for the major creditor
> countries—Germany and the Netherlands—to leave the euro first, before
> everything else crumbles.
>
> These two countries could create a new currency, called the neuro, or
> Northern Euro, for example. This would make German savers happy, while
> taking the pressure off the remaining members of the single currency.
> Over time the neuro would probably appreciate, and holders of the euro
> would be free to switch some of their assets into it.
>
> IU.eu: How likely is this to occur?
>
> Gloy: Given the current stance of EU politicians and central bankers,
> it’s very unlikely. But it’s the least worst of the outcomes, by far.

[From Euro To Neuro?](http://europe.etf.com/europe/features-a-news/7929-alex-gloy.html)

But are there any modern examples of currency unions breaking up in an orderly manner with minimal economic disruption? I can think of some currency pegs that ended without major harm but I can't think of any actual unions that ended without doing so. The rubble union dissolving might not have been a huge deal but only because the other changes to the affected countries were enormous. Maybe the dissolution of the [Scandinavian Monetary Union in 1914](http://en.wikipedia.org/wiki/Scandinavian_Monetary_Union) would qualify but WWI loomed large in that decision. War, financial crises, and depression do see to be the most frequent fellow travelers with dissolution of currency unions. Perhaps that's not because dissolution is horrendous so much as it is a high risk, relatively low reward strategy that is only worth trying when things are already terrible.


---

