Over 400 ways to leave the euro

DOMINIQUE Strauss-kahn, the former head of the International Monetary Fund, once compared the European single currency to marriage.

‘I’m not sure if this says more about his views on monetary union or on marriage,’ quipped Derek Scott yesterday as he announced the fivestrong shortlist for the £250,000 Wolfson Economics Prize.

The prize – the second biggest in economics after the Nobel Prize – was set up by Next chief executive Lord Wolfson last year to find the best way for countries to leave the euro in an orderly manner.

Scott, a former economic advisor to Tony Blair and chairman of the judging panel, described the euro as ‘a doomsday machine that is not only undermining economies but undermining democracy’.

With unemployment at a record high in the eurozone, and more than half of youngsters out of work in Spain and Greece, the finalists, whittled down from 425 entries including one from an 11-year- old Dutch schoolboy, seemed to agree.

Wolfson, a Tory peer and prominent eurosceptic, said: ‘Economies are incarcerated in an international debtors’ prison.

‘Sadly, the risk of a country leaving the eurozone has not gone away. The ideas contained in these entries are an invaluable contribution to tackling this important issue.’

The winner will be announced in July. Here is a look at the finalists and their submissions.

ROGER BOOTLE CAPITAL ECONOMICS

‘GREECE will leave the euro within the not too distant future,’ said Bootle, who argued that countries should ‘embrace the fall of the currency rather than fear it’. He said leaving the euro was ‘part of the solution not part of the problem’ and added: ‘Just do it.’

Bootle’s paper – at 156 pages, the longest to make the cut – stressed that the biggest problem facing the eurozone was high levels of debt and a lack of competitiveness.

He said default and devaluation was inevitable as a core, including Germany and other northern countries, splits from peripheral economies that return to their own separate currencies.

‘The most realistic scenario for euro break-up is that one or more of the weaker peripheral countries will leave the eurozone, introduce a new currency which then falls sharply, and default on a large part of their government debt,’ said Bootle.

CATHERINE DOBBS PRIVATE INVESTOR

DOBBS proposed ‘simply reversing the process whereby the euro was created’ and was praised for an ‘original, insightful, elegant and persuasive’ solution. The euro would be scrapped and replaced with new currencies, or old ones such as drachma and lire, with a value relative to the size of an economy and its health.

She said the ‘key’ to the break-up was to prevent money pouring out of troubled countries, which would spark bank runs and financial and social crisis.

JENS NORDVIG AND NICK FIROOZYE, NOMURA

THE fixed income experts warned that the major risk from the breakup of the euro was the legal uncertainty. A big problem is that a significant proportion of debt issued by countries in the single currency falls under English law rather than the local law – making default particularly tricky.

They proposed converting debt falling under national law into a new currency and debt under foreign law into a euro-related currency.

NEIL RECORD, RECORD CURRENCY MANAGEMENT

THE former Bank of England economist argued that if one country leaves the euro, then the entire currency will need to be scrapped because the moment one goes the view that the currency is ‘unbreakable’ or ‘ permanent’ becomes untenable. For example, if Greece left, it would give the markets ammunition to turn on other countries such as Portugal or Spain.

He said that the authorities should make a secret plan to dissolve the euro and take the markets by surprise. Record called for ‘a German-led taskforce to prepare in secret a plan for the orderly break-up of the euro’.

JONATHAN TEPPER, VARIANT PERCEPTION

TEPPER – co-author of bestseller Endgame: The End Of The Debt Supercycle – was praised for a ‘sparky’ essay that argued that the process of breaking up the euro is not especially challenging.

‘Currency break-ups happen all the time,’ he said. ‘The best way to promote growth in the periphery is to exit the euro, default and devalue.’

Tepper’s submission called for exits from the euro to happen ‘quickly and in rapid succession’ through a series of ‘surprise’ announcements when the markets are closed.

JURRE HERMANS, SCHOOLBOY

THE 11 year old from the Netherlands, the youngest entrant to the competition, stole the limelight. He did not make the final, but won a €100 gift voucher for his submission that likened Greek debt to pizza.

‘I am quite worried about the euro crisis and look at the TV news daily,’ he wrote. ‘The euro crisis is a big problem. I think about solutions. Greece should leave the euro.’ Many of the best minds in Europe agreed.