Pros and Cons of a Eurozone Breakup Essay

Decent Essays
Assess the advantages and disadvantages of a Eurozone breakup.

In the past few months, the likelihood of a Eurozone breakup has been escalating due to increasing tensions in the monetary union. The departure of problematic periphery countries like Greece from the Eurozone would have many implications onto Europe and the rest of the world. If the Eurozone were to break up, whether partially or completely, it would send the rest of the world into panic and economic turmoil. The countries departing the euro would have to revert back to its old currency and as such face a significant devaluation. Thus people who have their savings in these countries would see a significant fall in value of their savings. In order to prevent this from
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Meanwhile, the depositors in other Eurozone countries which are seen to be at risk of leaving the Euro, such as Spain, Portugal and Italy, may transfer their money to the safety of a German bank account. This would spark a banking crisis in Southern Europe as banks suffer from liquidity shortages. Despite the negative outcomes of a Eurozone breakup, it is worth to note that it may be the best solution to the current debt crisis. At the moment, the crisis has reached the stage where it may no longer be both financially and politically feasible to keep the whole Eurozone together. A prime example is Greece. Financially, the Eurozone may be better off letting Greece go, as efforts to reduce its national debt by offering exorbitant bailouts have been a huge drain on funds. Political wise, the Greek public has rejected the austerity measures imposed as a condition for the bailouts and have even voted for political parties which rejected austerity. Thus the funds used to bail out Greece can be better used on larger, more integral Eurozone countries which are more determined to reduce their debt levels. Lastly, a Eurozone breakup may have adverse effects on the remaining member countries in the form of rising bond yields. This is because investors will be wary of lending to struggling Eurozone countries in fear of the contagion spreading and a further breakup of the
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