Aug. 1 (Bloomberg) -- Countries in financial distress in the south of Europe fear leaving or being expelled from the single-currency union in part because they are concerned they will permanently lose the euro’s advantages, Hans-Werner Sinn and Friedrich Sell wrote in the Financial Times.
This worry could be dismissed if the euro region were made an open currency union, allowing exiting countries to have the status of associated member, adopting their own currency with the option to return to the euro at a later time, Sinn, president of Germany’s Ifo Institute for Economic Research, and Sell, a professor at Munich’s Bundeswehr University, wrote.
An associated member could get financial help from other euro-area countries and could adjust its exchange rate quickly to restore competitiveness and rejoin the single currency after fulfilling reform commitments, they wrote.
“The European Exchange Rate Mechanism II could provide a basis for such a currency ‘association,’” Sinn and Sell wrote, noting that all countries that have adopted the euro since 2000 have been required to spend two years within ERM II at a range of plus or minus 15 percent with respect to a central rate against the euro.
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