How to Leave the Eurozone: The Case of Finland

Tuomas Malinen 1 , Peter Nyberg 2 , Heikki Koskenkylä 3 , Elina Berghäll 4 , Ilkka Mellin 5 , Sami Miettinen 3 , Jukka Ala-Peijari 3  and Stefan Törnqvist 3
  • 1 University of Helsinki, Helsinki, Finland
  • 2 University of Helsinki, Helsinki, Finland
  • 3 Helsinki, Finland
  • 4 VATT Institute for Economic Research, Helsinki, Finland
  • 5 Aalto University, Helsinki, Finland
Tuomas Malinen, Peter Nyberg, Heikki Koskenkylä, Elina Berghäll, Ilkka Mellin
  • Aalto University, Department of Mathematics and Systems Analysis, Helsinki, Finland
  • Search for other articles:
  • degruyter.comGoogle Scholar
, Sami Miettinen, Jukka Ala-Peijari and Stefan Törnqvist

Abstract

This article provides thoughts and guidelines on how a country could exit from the Economic and Monetary Union (EMU) and its currency the euro. We take the hypothetical exit of Finland as a concrete example. Although there is a way out of the euro for Finland and other member countries, exit would not be easy, nor would its short-term costs be known beforehand with any clear margin. We find the lack of a domestic payments system and uncertainty concerning the redenomination costs to be the biggest risks associated with the cost of Finland’s exit. Still, the costs of Finland’s exit need not be very large, around 10 billion euros in the best-case scenario, but we also acknowledge a very costly scenario for the exit.

  • Åslund, A. 2012. “Why a Breakup of the Euro Area must be Avoided: Lessons from Previous Breakups.” Peterson Institute for International Economics Policy Brief, August 2012.

  • Athanassiou, P. 2009. “Withdrawal and Expulsion from the EU and EMU.” European Central Bank Legal Working Paper Series No. 10.

  • Bagnai, A., B. Granville, and C. A. M. Ospina. 2017. “Withdrawal of Italy from the Euro Area: Stochastic Simulations of a Structural Macroeconometric Model.” Economic Modelling 64 (August): 524–538.

  • Berghäll, E., H. Koskenkylä, T. Malinen, and P. Nyberg. 2017. “Euro and its costs - A reply to Dr. Oksanen.” The Economics Magazine 113 (3): 393–399.

  • Capital Economics. 2014. “NExit: Assessing the Economic Impact of the Netherlands Leaving the European Union.” 6 February 2014.

  • Céspedes, L. F. 2005. “Financial Frictions and Real Devaluations.” Central Bank of Chile Working Paper No 318.

  • Corsetti, G., K. Kuester, and G. Müller. 2016. “The Case for Flexible Exchange Rates in a Great Recession.” CEPR Discussion Paper DP 11432.

  • Dornbusch, R. 1996. “Euro Fantasies: Common Currency as Panacea.” Foreign Affairs, 75.

  • Einaudi, L. 2000. “The Generous Utopia of Yesterday can Become the Practical Achievement of Tomorrow: 1000 Years of Monetary Union in Europe.” National Institute Economic Review 172: 90–104.

  • Estrin, S., and G. Urga. 1997. “Convergence in Output in Transition Economies: Central and Eastern Europe, 1970–1995.” SSRN Working Paper No. 11072.

  • European Financial Market Lawyers Group. 2003. “Force Majeure Clauses and Financial Markets in EU Context.” http://www.efmlg.org/Docs/Documents/2003%20November%20EFMLG%20report%20-%20Force%20Majeure%20Clauses%20and%20Financial%20Markets%20in%20an%20EU%20context.pdf.

  • Fidrmuc, J., J. Horvath, and J. Fidrmuc. 1999. “The Stability of Monetary Unions: Lessons from the Breakup of Czechoslovakia.” Journal of Comparative Economics 27: 753–781.

  • FFI, Federation of Finnish Financial Services. 2008. “Maksaminen Suomessa ja Euroopassa.”

  • Galbraith, J. K. 2016. Welcome to the Poisoned Chalice: The Destruction of Greece and the Future of Europe. New Haven: Yale University Press.

  • Ghosh, A., J. Ostry, and M. Qureshi. 2015. “Exchange Rate Management and Crisis Susceptibility: A Reassessment.” IMF Economic Review 63 (1): 238–276.

  • Glynn-Jones O., and N. Pryor. 2015. “Mitigating the Risks Implications of Grexit.” Berwin, Leighton and Paisner LLP, 1.7.2015. https://www.blplaw.com/expert-legal-insights/articles/mitigating-risk-implications-grexit.

  • Gopinath, G. Ş. Kalemli-Özcan, L. Karabarbounis, and C. Villegas-Sanchez. 2017. “Capital Allocation and Productivity in South Europe.” Quarterly Journal of Economics 4 (132): 1915–1967.

  • Jones, C. 2016. “ECB Fears Legal Action will Rein in Scope for QE.” Financial Times, September 22. https://www.ft.com/content/8e281f7c-7f2d-11e6-bc52-0c7211ef3198.

  • Kanniainen, V., J. Ala-Peijari, E. Berghäll, M. Kantor, H. Koskenkylä, P. Koskenoja, E. Lepomäki, T. Malinen, I. Mellin, S. Miettinen, P. Nyberg, and S. Törnqvist. 2014. The Future of the EMU – The Options for Finland. Helsinki: Libera.

  • Kearns, J., and N. Patel. 2016. “Does the Financial Channel of Exchange Rates Offset the Trade Channel?” BIS Quarterly Review, December 2016.

  • King, Mervyn. 2016. The End of Alchemy: Money, Banking and the Future of the Global Economy. New York: W.W. Norton.

  • Kohn, D., F. Leibovici, and M. Szkup. 2017. “Financial Frictions and Export Dynamics in Large Devaluations.” FED St. Louis Working Paper No 2017-013A.

  • Leinonen, H. 2007. “Muovista Biteiksi – Maksutavat Murroksessa.” Euro ja Talous 4: 27–35.

  • Malinen, T., P. Nyberg, H. Koskenkylä, E. Berghäll, I. Mellin, S. Miettinen, J. Ala-Peijari, and S. Törnqvist. 2016. “How to Abandon the Common Currency in Exchange for a New National Currency.” SSRN Working Paper No. 2847507.

  • Meyer, D. 2012. “Currency Disintegration: Two Scenarios of Withdrawal.” Applied Economics Quarterly 58 (3): 171–191.

  • Nechio, F. 2011. “Monetary Policy: When One Size Does Not Fit All.” FRBSF Economic Letter, June 13.

  • Nordvig, J. 2014. “Currency Redenomination and Balance Sheet Effects.” http://jensnordvig.com/paper-on-redenomination-risk/.

  • Proctor, C. 2011. “The Euro – Fragmentation and the Financial Markets.” Capital Markets Law Journal 6 (1): 5–28.

  • Rose, A. K. 2007. “Checking Out: Exits From Currency Unions.” Journal of Financial Transformation. CEPR Discussion Paper 6254.

  • Schmitt-Grohe, S., and Uribe M. 2016. “Downward Nominal Wage Rigidity, Currency Pegs, and Involuntary Unemployment.” Journal of Political Economy 124 (5): 1466–1514.

  • Sinn, H-W. 2014. The Euro Trap. On Bursting Bubbles, Budgets and Beliefs. Oxford University Press: Oxford.

  • Stiglitz, J. E. (2016). The Euro: How a Common Currency Threatens the Future of Europe. New York: W.W. Norton & Company.

  • Takala, K. 2015. “Katsaus käteisen käyttöön ja virtuaalivaluuttoihin.” Bank of Finland, Payments Council, 17.4.2015.

  • Variant Perception. (2012). “A primer for the Euro Breakup: Default, Exit and Devaluation as the Optimal Solution.” http://albertobagnai.it/wp-content/uploads/2016/02/Tepper2012.pdf.

  • Woodford, M. 2011. “Simple Analytics of the Government Expenditure Multiplier.” American Economic Journal: Macroeconomics 3 (1): 1–35.

Purchase article
Get instant unlimited access to the article.
$42.00
Log in
Already have access? Please log in.


Journal + Issues

The Economists' Voice creates a forum for readable analysis by leading economists on vital economic policy issues of our day. The focus is on the clear verbal presentation of important evidence-based arguments for a broad readership. Empirical papers on policy-relevant issues are also welcome.

Search