Europeans are struggling with the stalled economies of the continent’s “south” – Portugal, Ireland, Italy, Greece and Spain – the PIIGS. The once-unspeakable option of unraveling the monetary union has now been spoken. The taboo is broken.
One idea making the rounds is splitting the currency in two, at least temporarily, to allow the slower economies to pull out on their own, with a Northern Euro and a Southern Euro floating at different levels, corresponding to each area's economic conditions.
Some formerly-unutterable notions have moved from whisper to print, incurring the wrath of European officials. Andrew Bosomworth, a Pimco bond fund manager, told the German newspaper Die Welt that the best way to save the PIIGS is to allow those countries to temporarily leave the eurozone and return to their old currencies. Back on pesetas, drachmas and liras, the southern Europeans could devalue, making their exports cheaper and boosting their economies – just like countries with full control of their own currency have done over the centuries. Without such a plan, he warned, the eurozone could ultimately fall apart.
“Blasphemy!” That’s the common reaction from high officials to such suggestions. Jean-Claude Trichet, the top Euro banker, called the idea of any eurozone country leaving the euro "absurd.” Still, investors, presumably including Bosomworth, are moving away from PIIGS’ bonds, especially now that Moody’s has downgraded Irish sovereign debt.
Bosomworth does have a point when he says that the current prescription of sharply tightening spending will make it difficult for troubled countries to get their economies in fast-growth gear. Belt-tightening has triggered riots in the streets, and bailouts of overspending countries have angered taxpayers of more thrifty nations. And yet nobody has much to gain politically right now from a break-up of the eurozone, so the prospects of that happening remain low. What does seem clear is that European integration and economic homogenization will take a breather.