Contributed Content (0)
Ask a Question
could you explain me in more detail how experts calculate 30-40% lost in GDP for the first year after changing the currency? any historical feedback? thanks
Tommaso, that 30-40% figure came from a report by UBS. Info on the report is here: http://www.zerohedge.com/news/bring-out-your-dead-ubs-quantifies-costs-e...
Here is an excerpt:
"The cost of a weak country leaving the Euro is significant. Consequences include sovereign default, corporate default, collapse of the banking system and collapse of international trade. There is little prospect of devaluation offering much assistance. We estimate that a weak Euro country leaving the Euro would incur a cost of around EUR9,500 to EUR11,500 per person in the exiting country during the first year. That cost would then probably amount to EUR3,000 to EUR4,000 per person per year over subsequent years. That equates to a range of 40% to 50% of GDP in the first year."
It doesn't make it very clear how they actually arrived at these figures. They probably have some model of the economy and how GDP responds to credit conditions, the government's fiscal situation, exports, etc. and make assumptions about how all of those things would react to leaving the euro. Concerning your question about historical feedback, I think that the model they use is probably informed by past examples of sovereign default and currency devaluations (of which there have been many-- in the case of the euro it would just be a much bigger deal.)
But if the problem country will stay in the Unioin, may the downturn worse which will bring contagion in more surpluses countries? And the effect will be the worst?
I often hear that we(my country) should not leave Eurozone because then the freedom of traveling will be gone. This is a false argument, Eurozone do not guarantee this, and there a countries that do not belong to the Eurozone and their citizens could travel where they want.