This Is The Way The Euro Ends

by Paul Krugman

New York Times
November 18, 2010

Not with a whimper but with a bank run.

OK, I’m overstating the case — we’re some ways from a euro exit for Greece, let alone Ireland. But we are drifting closer to the kind of scenario I wrote about back in April.

I used to be a full believer in the Eichengreen theory of euro irreversibility, which said that no nation could even discuss leaving the euro, because it would lead to the mother of all bank runs. But as I wrote in April,

But now I’m reconsidering, for a simple reason: the Eichengreen argument is a reason not to plan on leaving the euro — but what if the bank runs and financial crisis happen anyway? In that case the marginal cost of leaving falls dramatically, and in fact the decision may effectively be taken out of policymakers’ hands.

More