Arnold Kling  

Today on the Eurozone Crisis

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Tyler Cowen writes

In the meantime, doesn't every euro -- a few sticky grannies aside -- leave the Italian banking system? Presumably the new lira is not pegged at 1-to-1 forever.

He is referring to an op-ed by Robert Barro that says that you could re-introduce separate European currencies today and have them trade in parallel with the euro for a while.

This is one of those situations where if Barro and I were in the same room, I would say, "I am slow. Explain this to me in more detail. Your idea is that today, the Italian government starts issuing bonds denominated in lira. Does it actually issue any lira today, or does it wait until some 'start date' in 2014? At that point, is the lira a floating-exchange-rate currency? What if somebody sets up a lira futures market?"

I was totally baffled by Barro's piece, and I find it somewhat comforting that Tyler seems a bit baffled as well.

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CATEGORIES: Eurozone crisis

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Mark Michael writes:

I read Robert Barro's op-ed this morning, too, and thought, "Is he really saying this? Am I missing something?" Someone with standing as an economist should email him, "Did you really think this through? Can you elaborate on the specific steps by which this would take place?" It seemed pretty cavalier to me.

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