In a new piece on Project Syndicate, Roubini points out that while European leaders are currently busy buying time while they debate the next steps toward banking and fiscal union, the steps they are taking – like backstopping troubled banking systems and sovereign states with bailout monies – are exacerbating imbalances that could make a eurozone breakup very painful down the road.
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If a breakup can't be avoided, "delaying the inevitable would merely make the endgame worse – much worse," writes Roubini. He explains:
Of course, a breakup now would be very costly, requiring an international debt conference to restructure the periphery’s debts and the core’s claims. But breaking up earlier could allow the survival of the single market and of the EU. A futile attempt to avoid a breakup for a year or two – after wasting trillions of euros in additional official financing by the core – would mean a disorderly end, including the destruction of the single market, owing to the introduction of protectionist policies on a massive scale. So, if a breakup is unavoidable, delaying it implies much higher costs.
But politics in the eurozone does not permit consideration of an early breakup...Only time will tell whether betting the house to save the garage was the right move.
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