So what happens if the euro breaks up?

by John Dizard

Financial Times
November 27, 2011

In comparison with such momentous consequences, was the treaty not a scrap of paper?

Chancellor Theobald von Bethmann-Hollweg; his account of a discussion with the British ambassador about the treaty guaranteeing Belgium’s neutrality, August 3 1914

At the time, Mr Bethmann-Hollweg’s remark was considered outrageous by the Allies, but from the perspective of nearly a century, you have to say he had a point about the initiation of the first world war. Was avenging the violation of the Belgian Treaty of 1839 worth 35m casualties?

Back to financial matters governed by other treaties. I was surprised to hear a local radio talk show host in California going on about last week’s disappointing German government bond auction, and what it seemed to mean for the euro’s prospects. Anyone familiar with efficient markets theory would think that by now contingency plans had been unrolled, and consequences efficiently discounted.

Nope.

I’m surprised at how Europeans in positions of authority seem to have ignored the continent’s past experience with currency area break-ups. For example, what happens when money flows from the first-to-devalue to the last-to-devalue?

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