In following the Greek economic crisis, I have very little to add that has not been said. But one economist who said it well three and a half years ago is Australian economist and German native Wolfgang Kasper. His Econlib Feature Article, "Nothing New on the Euro Front," is still well worth reading. An excerpt from his conclusion:
Over the long term, there is but one solution to the Euro crisis: Flexible shock absorbers must be built into the Euroland cart again, as the road ahead may well become bumpier. This could mean that the Germans and some of their Northern neighbors quit the Euro, which would be a noble solution on the part of the strong economic regions. Or it could mean that the Greeks and Italians are invited to take 'a holiday from the Euro,' while the French and Spanish governments rein in their expensive welfare policies for citizens, industry and agriculture in order to keep pace within a new Hard Euro.
But wouldn't such an exit be messy? Yes, says Kasper, but other countries have been there before:
Both solutions would create hairy legal problems for owners of monetary assets and partners in credit contracts. But such problems are not new. They have been solved before when monetary unions were dissolved. Maybe European central bankers should apply for instruction in Singapore and Kuala Lumpur about how the split-up of the Straits dollar into the Singapore dollar and the Malaysian ringgit was handled, or they might learn how Prague and Bratislava did it during the 'Velvet Divorce.' Meanwhile, loan contracts are already being designed that anticipate devaluations after the introduction of the Nea Drachma, and wealthy foreigners in Tuscany are scrambling to match the value of their holiday homes with mortgages from Italian banks, so that their losses after the slide of the Lira Dura are minimized.
And his suggested step forward:
The technical and administrative problems with an introduction of a New D-Mark could also be solved: The government can declare that to forestall an imminent crisis, it has, most regrettably, no other option but to withdraw legal tender status for all Euro banknotes that do not carry a German identifier (all banknotes show a national code). All other Euro notes and coins will be exchanged at a fixed rate within three months. Political leaders can, after all, explain that it is free travel, free trade, free capital and enterprise movements, and the freedom for young Europeans from different countries to marry that matter for European integration, prosperity and lasting peace, not the artificial bond of an imposed unitary currency.