DON’T BET ON THE DEMISE OF THE EURO!!!

There is tremendous political capital vested in the euro and it is unlikely that the euro will come apart. Even in Germany, the euro has still a lot of political and popular support. The collapse of the euro and the costs to the European and the world economy would be unprecedented. Equally important, the political costs for Europe would be immense. The credibility of both EU-wide institutions and national governments would suffer a massive blow. There would be contagion and the consequences of the Euro’s failure to the global financial system would be catastrophic and drive the world into another recession. A collapse of the eurozone would bring with it a cascade of bank failures, popular panic, mass unemployment, and a financial crunch that by some estimates could produce a 25 percent decline in Europe's GDP. In effect, it would be a modern version of the Great Depression that would threaten the global financial system.

Consequences for America

A disintegration of the euro would almost certainly spread to the United States. America would inevitably hurt. The Eurozone is the United States’ third largest export destination, accounting for 15% of total U.S. exports. Economic and financial chaos in Europe would severely disrupt American exports to Europe. American companies would suffer and more American jobs would disappear. To compound the problem, the dollar, as the world’s reserve currency, would become extremely strong (people and countries would  be trying to find “safe” places for their cash), making it harder for American companies to sell their goods abroad. Furthermore some estimates have put American banks and market funds as holding more than $2 trillion in European banks. Those European banks hold a lot of European sovereign debt that could go bad. American banks could stand to face billions or possibly trillions of dollars in losses on their credit exposure to Europe, and thus call into question the solvency of the entire American financial system.

What the markets need to hear is that western politicians – whether in the eurozone or not  see the euro as part of the potential solution to capitalism's current crisis, not its cause, and that they are prepared to do all in their power to support the reforms necessary to make the euro survive and take other measures vital to make the world financial system functional again.

The existence of the euro has, until now, been a bulwark against disaster. Suppose it had not been created and that the financial crisis in 2008 had broken over a Europe with multiple floating exchange rates and no European central bank – the eurosceptic utopia. The Irish, Portuguese, Greek, Spanish, Italian and French banking systems would have stood alone and they would have collapsed in a domino effect, interacting with the mega-crisis in Britain and the US. Even some German banks would not have been immune. There would have been a 1930s-scale slump, the break up of the EU and a rise in beggar-my-neighbour devaluations and trade protection.

Trying to pretend that the collapse of the euro is the answer can only make matters worse. It is a straight choice: we do all we can to help each other or risk going down in what could be the worst economic contraction for a century.