The case for the Survival of the Euro (Link)

Peterson Institute for International Economics

‘Why the Euro Doomsayers are Wrong’

Jacob Funk Kirkegaard

I’m not saying the Euro will survive, I am baised towards hoping it will survive.  I won’t go into the reasons for that right now.  None of us are free of baises and here is an interesting bias confirmg item.  Kirkegaard’s basic argument is that investor flight government bonds in the fiscally stronger countries in the Eurozone will be reversed because of increasing interest rates on bonds in the weaker countries

Opening paragraph

 

The economist Thomas Schelling began his 2005 Nobel Prize lecture with a famous declaration. &ldquo;The most spectacular event of the past half century is one that did not occur,&rdquo; he said. &ldquo;<a style=”color: #323d5b;” href=”http://www.nobelprize.org/nobel_prizes/economics/laureates/2005/schelling-lecture.pdf&#8221; target=”_blank”>We have enjoyed 60 years without nuclear weapons exploded in anger</a>&nbsp;<span style=”font-family: Verdana, Arial, Helvetica, sans-serif; font-size: smaller; color: #903f4c;”>[pdf]</span>.&rdquo; In the same way, the imminent collapse of the euro area will likely be the greatest non-event in recent financial history. In light of recent events in the euro area, in which &ldquo;nuclear threats&rdquo; of euro expulsion have been issued to Greece and borrowing costs have spiked to unsustainable levels for Italy, the European political and economic situation can perhaps best be understood through the game-theory analysis for which Schelling and Robert Aumann won their Nobel Prize.

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