Good pieces in the Financial Times and National Review Online on the terrible range of options facing the Euro. Splitting the currency into two (or more) would involve a dangerous an awful transition, but is the best of a sorry lot of options.
Even if policy makers were to figure out some mix of stimulus and austerity that magically worked, it would cause social unrest:
Without the option of devaluing their currencies, uncompetitive economies are left with “internal devaluation” – otherwise known as wage cuts and mass unemployment. It is true that countries such as Greece badly need economic reforms. But these reforms – conducted within the straitjacket of monetary union with Germany – are causing political and economic turmoil.
Even if EU politicians were able to overcome such objections and create a real federal union, this giant new entity would essentially hollow out the powers of national democracies. Sacrificing national self-rule on the altar of the euro is inherently objectionable – and would invite a nationalist backlash across Europe. This “cure” for the ills of the euro would be worse than the disease.
The author calls for an organized “velvet divorce” and quotes a (very) German proverb: “Better an end with horror than a horror without end.”