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Finland Finally Considers Something Sensible: Leaving The Euro and The Eurozone

This article is more than 8 years old.

Sadly, Finland has not in fact decided to do that sensible thing yet, leaving the euro, but they are at least beginning to talk about it. Under the rules in that country if enough people sign a petition then an issue will be debated in the Parliament. This has now happened on this issue and thus the debate there will be. And the correct answer to the debate is that the country should leave. It's not in extremis so it's not the same case that Greece could have made for leaving: but that also means that leaving would be a great deal less chaotic than if Greece had tried it. But the effects of being in are pernicious upon the economy and so therefore it should be out: as is my opinion for everyone.

As the report goes:

Finland's parliament will debate next year whether to quit the euro, a senior parliamentary official said on Monday, in a move unlikely to end membership of the single currency but which highlights Finns' dissatisfaction with their country's economic performance.

The decision follows a citizens' petition which has raised the necessary 50,000 signatures under Finnish rules to force such a debate, probably the first such initiative in any country of the 19-member euro zone.

As to quite why Finland should leave two points from Paul Krugman. The first:

What all of these economies have in common, however, is that by joining the eurozone they put themselves into an economic straitjacket. Finland had a very severe economic crisis at the end of the 1980s — much worse, at the beginning, than what it’s going through now. But it was able to engineer a fairly quick recovery in large part by sharply devaluing its currency, making its exports more competitive. This time, unfortunately, it had no currency to devalue. And the same goes for Europe’s other trouble spots.

Does this mean that creating the euro was a mistake? Well, yes.

And the second:

This shouldn’t come as a surprise; it’s the core of the classic Milton Friedman argument for flexible exchange rates, and in turn for the tradeoff at the core of optimum currency area theory. The trouble in Finland is what everyone expected to go wrong with the euro.

What’s going on in Greece represents a whole additional level of hurt, which nobody saw coming. But it’s important, I think, to realize that even countries that didn’t borrow a lot, didn’t experience large capital inflows, basically did nothing wrong by the official criteria, are nonetheless suffering in a major way.

And to add something of my own. Within the milieu where the euro is considered to be a good thing, rather than the abomination that it is, there's a stated idea that this is all going to be a one time only problem. After the various economies have adjusted to being in the euro then all will be sweetness and light again. But this is to fundamentally misunderstand that trade off of an optimal currency area. Any and every asymmetric shock that hits a currency area will cause exactly the same problem for the regions most affected. And Europe's way too large an area for their not to be asymmetric shocks turning up every couple of years. Finland didn't do anything wrong at all yet the economy is still, as Krugman points out, crocked by this currency system. And as long as the euro remains then other places, which again have done nothing wrong economically, are going to be similarly affected by such troubles. Simply because there always will be another shock just around the corner.

It isn't simply that Greece and Finland can get themselves sorted out and then that's the problem over with. Rather, some area of the eurozone economy is going to have to go through this painful process every few years or so. Simply because there will be one of those asymmetric shocks along every few years or so. The euro is thus a permanent lock in to some part of Europe suffering near Great Depression times every few years. And that just ain't a hallmark of a good economic system or currency arrangement.

Thus, obviously, everyone should leave the euro.

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