Monday, September 19, 2011

“If the euro fails, then Europe fails.”

As Europe’s leaders pledge support for the single currency, the talk among some is of default. An outline of the possible outcomes

“If the euro fails, then Europe fails.”

Angela Merkel’s staunch defence of the single currency, made in the Bundestag this month, is widely shared by other European leaders. The German chancellor’s sentiment demonstrates the political will not to let Europe’s sovereign debt crisis undermine the single currency.

So long as this level of political capital is invested in the euro, monetary union is highly likely to survive. However, the talk among investors and some European politicians this week has been of Greek default. The graphic below outlines the likely consequences of a default by Greece. It is a description, not a prediction – a description that includes the possibility of the break-up of the eurozone, though even in the event of Greek default that outcome is far from inevitable.

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