Wolfson Economic Prize Recognizes the Best Plan for Leaving the Euro

Thursday, July 05, 2012

The 2012 Wolfson Economic prize has been won by Roger Bootle, who came up with a plan for how to cope with the demise of the euro. Bootle led a team from Capital Economics that submitted a plan called "Leaving the Euro: A Practical Guide" (PDF). It was deemed the best plan for a member state exiting the euro zone.
According to the plan, a country should prepare an exit plan in secret, and implement a new currency with a 1-1 value with the euro. Just as the switch is carried out, Bootle says that the ensuing devaluation of the currency would make the country in question competitive once again.  
"The change of the exchange rate [will cause] the difference. In a flash, [the country] will become competitive again," Bootle says. "The result of that will be a rise in exports, fall in imports, economic growth, and falling unemployment." Non-cash payments and euro notes would be used in transactions until the new currency could be instituted. 
While the economist is loathe to deal in absolutes, he thinks that the chances of struggling countries like Greece, Italy, and Portugal would quickly depart from the euro zone if given the chance that his plan offers. The northern countries, centered around Germany, would maintain the interconnection that the euro provides. 
"The conventional wisdom at the moment is that if the euro were to break up, [it would be] the disaster that we would all fear. I feel that this is 100 percent wrong," Bootle argues. "The disaster that we should all fear is that the euro zone staggers on, because that would ensure that there's no growth in most of Europe, and that brings all sorts of awful consequences with no hope, frankly, for the southern member countries of the euro zone." 
Since the financial crisis, the European Union has struggled to keep its currency afloat due to the financial woes of many of its members. Numerous bailouts of problematic members such as Greece have not yet solved the crisis. The European Central Bank recently cut euro zone lending rates to record low numbers as part of a push to keep the euro going. 
Bootle also weighs in on the current investment banking scandal centered around allegations of the manipulation of the Libor, a British interest rate between banks. "It's all very well to blame London for this, but what we know is that the banking industries are very strongly [connected] between the United States and London," Bootle says. "New York and London are like Siamese twins. I'd be very surprised if we aren't going to see New York embroiled as well."

Guests:

Roger Bootle

Produced by:

Rupert Allman, Robert Balint and Arwa Gunja

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