3/2/2012: De Kaufman Door 2

Another set of interesting survey results from the Kaufman Econ Bloggers Outlook Q1 2012:

John Cochrane asked: should the eurozone become: 1) a currency union without fiscal union, allowing

sovereign default; 2) a currency union with strong fiscal union; or 3) Broken up

(no euro) into national currencies or smaller units?

So let's set aside the political feasibility of each option, in the first-best economics world:

• Euro as a currency union without fiscal union, allowing sovereign default is an option for 22% of the respondents.
• Euro as a currency union with strong fiscal union is preferred by 27% of respondents
• No euro with national currencies returning or smaller sub-blocks emerging is favored by 51% of respondents

There are, really, only 2 surprises in the above:

1. Relatively large number of economists who believe that sovereign defaults can be sustained in a currency union with no automatic transfers specified (I presume that many could have simply thought that transfer systems can be established either under an EU Commission umbrella or via ECB) and
2. Only 51% of the respondents recognize that there is, under current institutional set up, no real chance of managing an economically effective functional monetary union. And that there is no need to do this either.