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What happens if the eurozone breaks up?

In this photo illustration precarious towers of one Euro coins stand on Oct. 6, 2011 in Berlin, Germany.

Kai Ryssdal: Today was another two steps forward, one step backward in the ever-unfolding European debt crisis. This morning, German Chancellor Angela Merkel said something interesting. She said Germany might be willing to give up a little bit of its sovereignty if it meant keeping the European Union together. No small offer coming from the country at the economic heart of the eurozone.

Investors all but poo-pooed Merkel, though. Bond traders couldn't get out of European debt fast enough. Interest rates on French, Dutch and Austrian bonds rose today. Italy had to pay more than the dreaded 7 percent on its debt.

And so we go to Marketplace's Stephen Beard with the 'What if?' question. What if -- despite all the angst -- the eurozone collapses?

Here's Stephen.


Stephen Beard: Who was the true father of the euro? Controversially, you could argue it was this man.

Adolf Hitler speaking

After the death and destruction triggered by Hitler, Europe resolved to do everything to prevent another war. Germany, France and others decided to forge ever closer links.

Italian academic Franco Pavoncello says that process culminated in monetary union.

Franco Pavoncello: The euro is not an economic concept, it is a strategic concept. You don't have the euro to make money, you have euro not to kill each other.

Such is that political committment to ever closer union in Europe that many economists -- like Andrew Hilton -- don't believe the euro will be allowed to disappear.

Andrew Hilton: One or two countries that are currently members of the euro might be kicked out or might leave voluntarily but I don't think that the euro itself is going to collapse.

Indeed, Chris Martin, professor of economics at Bath University, believes the eurozone would be better off without some of its existing members.

Martin: I think the eurozone is sustainable were it to be limited to northern European countries, probably including France, probably not including Italy and Spain.

Martin says the northerners would accept German-style fiscal and monetary rigour. The southerners might prefer devaluing and gently inflating their way out of trouble. He says Europe might be better off all-round.

Martin: Once the eurozone has managed to shed some of its members, it will work perfectly efficiently and I think those ex-eurozone members will manage perfectly well by themselves.

After all, 10 members of the European Union -- including Britain, Denmark and Sweden -- already live quite happily without the euro. But it's the divorce between eurozone members that could be the problem. Breaking up is hard is to do.

James Walston is with the American University in Rome.

James Walston: If Italy crashes out of the euro or if Italy reaches the stage where it has to default or leave the euro, that would mean the end of the euro.

He believes that Italy is just too big and important to leave the single currency. It would trigger a tidal wave of financial speculation against almost every other member state.

James Goundry of IHS Global Insight says if any country leaves, it could set off an unpredictable chain reaction.

James Goundry: So if you start to dismantle the eurozone or even get rid of the single currency altogether, I think suddenly you find yourself in very uncharted waters. And I don't think anyone really knows where that could end.

The German leader Angela Merkel says if the euro fails, Europe fails. The long process of ever closer integration would be slammed into reverse. But surely after more than 60 years of peace, at least war is totally out of the question?

Professor Chris Martin.

Martin: Objectively, as a rational European, I think that can't possibly happen. Rationally, of course, there's no way that could happen. But wars and conflicts are not rational processes. We really don't know.

But we can be sure that the immediate aftermath of a euro disintegration would not be pleasant. Bond markets would collapse, and currencies gyrate -- just when the European economy is on the cusp of recession. Bitterness and the souring of a 60-year-old dream would certainly follow.

In London, I'm Stephen Beard for Marketplace.

About the author

Stephen Beard is the European bureau chief and provides daily coverage of Europe’s business and economic developments for the entire Marketplace portfolio.

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