The Real Effects of a Euro Exit: Lessons from the Past

In the debate between supporters and critics of the euro, the opposing ideological extremes have gotten it wrong. The most important lesson we can learn from the experience of the past is that the outcome, in terms of growth, distribution, and employment, depends on how a country remains in the euro; or, in the case of a euro exit, on the quality of the economic policies that are put in place once the country regains control of monetary and fiscal matters, and not on the fact of abandoning the previous exchange system. At the same time, historical experience suggests that countries with higher per capita income and more stable political institutions would be more likely to benefit from a euro exit.