Paul Taylor: States are hurting, but exit from euro still unthinkable

Unlike true love, the euro really is forever. That may seem a reckless notion to advance just as Ireland becomes the second highly indebted member of the 16-nation single currency area to require a bail-out, following Greece, and as bond markets close in on Portugal and Spain.

But the cost to any country of leaving the eurozone would be so high, and the damage that an exit would inflict on the currency and the remaining members so great, that no government would rationally choose to secede, or to push another out.

Argentina's 2001-2 economic crisis and $100 billion bond default, which thrust millions of people into poverty, would pale in comparison with the likely chain reaction across Europe.

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Jean Pisani-Ferry, director of the Brussels economic think-tank Bruegel, said: "There would be chain bankruptcies. A run on the banks would be certain. It would be far worse than Argentina."

The costs of the "non-euro" would be multiple: political, economic, social, reputational and strategic.

The common currency launched in 1999 is the apex of half a century of European integration. Even a partial break-up would be a momentous setback for the European Union, including for the 11 member states that have not, or not yet, joined the euro.

The 27-nation EU, which struggles to make its voice heard in a world where emerging powers are challenging Western hegemony, would suffer a devastating loss of prestige.

It is hard to imagine the EU's single market in goods, services, capital and labour - the foundation stone of European prosperity - remaining intact if countries quit the euro, triggering disorderly devaluations and chaotic financial flows.

The exit of a state such as Greece, Ireland or Portugal, or the imagined departure of economic giant Germany, would cause immense bitterness and could revive national conflicts that European unification was meant to bury forever.

Germany, which sells more than 50 per cent of its exports to the eurozone, would lose vital markets and likely end up with a overvalued currency that would impede its international economic competitiveness.

Pisani-Ferry said: "The political consequences would be dreadful. There would be almighty recriminations. A country that left the euro would no longer be friends with the others."

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US economist Barry Eichengreen, a professor at the University of California, Berkeley, authored a classic 2007 paper arguing that the single currency could not be undone, reaffirmed that belief in the midst of the Greek crisis.

In a recent article on the economics website Vox, he said: "Adopting the euro is effectively irreversible.

"Leaving would require lengthy preparations, which, given the anticipated devaluation, would trigger the mother of all financial crises,"