Euro Area

[Kralizec]

It's actually quite more complicated than that - who's going to exchange their euros for drachmas? I certainly wouldn't. In theory you could trace all euros to the country that issued them, but then there would be a problem with a Finn going to the bank with 10,000 euros and getting markkas, marks, liras, pesetas and drachmas in return.

I think he is right that the Merkozy plan will go the way of the failed authoritarian grand projects of the past. And you misrepresent his statement about populism. Anyway, a transition doesn't seem as simple as that. For instance, what should happen to all debts nominated in euros? I suppose The Netherlands could kiss most of their 150 billion euro loans to Italy, Spain, Greece and Portugal goodbye. Our 40 billion export to these countries would possibly be halved because of their much cheaper new currencies. And that's only us. I would predict humongous instability throughout Europe. So what would be the proper mechanisms to more or less control such seismic movements?

I imagine (allthough I'm not exactly well-versed in this sort of thing) that there'd be a long interim period in which national, new currencies exist on paper and pegged to the Euro. This will give time for a lot of government bonds to reach maturity; for those that do not mature in the interim, they'll be "partitioned" into multiple bonds notated in all the different currencies of the former Eurozone. Wether anyone would want to buy new bonds in Drachme or Lira is of course the problem of Greece and Italy, and noone elses. Or at least directly.
For private debts; I imagine that many will renegotiate and pick a relatively stable currency as a bench mark: say, at this point the debt is worth 100.000 Japenese Yen, and when payment is due we expect payment in [French Francs, Liras, Pesetas etc.] worth the same amount in Yen.

As I said before though, I'm not in favour of disbanding the Euro currency. I imagine the resulting situation will be a lot worse then during or before the Euro.