The Euro Is Safer than Ever – Here's Why - Jacob Funk Kirkegaard

There has been little love by financial markets for European leaders these days. But one has to wonder about the level of disdain reflected in recent surveys of City of London economists and global investors showing agreement about the likelihood of a breakup of the euro-zone. How can a majority of 25 City of London economists conclude that “a euro break-up of greater or lesser proportions during the next Parliamentary term” – within five years , in other words – is likely?

In reality, there is next to no chance that the euro-zone will break up as a result of the current economic crisis in Europe, or as a result of a probable Greek sovereign default. There are several reasons why. First, leaving the euro would impose a catastrophic cost on any nation that tries to do so out of economic weakness. Even euro-zone countries that default on their debts would be far better off inside the euro-zone than outside (crucially, euro-zone members cannot be kicked out), because in the longer-term they would still have access to the deep liquid euro-zone financial markets.

Any euro-denominated interest rate imposed by financial markets even after a default would be a lot lower than interest rates on, say, new drachma-denominated bonds. Moreover, under the Lisbon Treaty (which will not be revised in even the medium term) leaving the euro zone cannot be done without quitting the EU entirely. Such a move would entail a nearly complete regional political isolation and probably exposure to the EU’s external trade barriers as well.

For more: Kirkegaard: The Euro Is Safer than Ever – Here's Why - CNBC