Source: www.econmatters.com - Saturday, January 17, 2015 By Markus Brunnermeier and Harold James Since the European sovereign-debt crisis erupted in 2009, everyone has wondered what would happen if a country left the eurozone. At first, the debate focused on crisis countries – Greece, or maybe Portugal, Spain, or Italy. Then there was a rather hypothetical discussion of what would happen if strong surplus countries – say, Finland or Germany – left. Through it all, a consensus emerged that an exit by one country could – like the collapse of Lehman Brothers in 2008 – trigger a wider meltdown. Now, in Switzerland, we have a demonstration of just some of the risks that might emerge were a surplus country to leave the eurozone. In September 2011, Switzerland pegged its currency to the euro to set a ceiling to the Swiss franc’s rapid appreciation in the wake of the global financial crisis that erupted in 2008. The country thus became a temporary adjunct member of the European monetary union. But, on January 15, the Swiss National Bank (SNB) suddenly and surprisingly abandoned the peg. Obviously, exiting a real currency union is far more complex and legally fraught than ending a temporary exchange-rate arrangement; the effects of such a move would be greatly magnified. Nonetheless, the Swiss move reveals at least some of the uncertainties that a full-fledged exit could create. The SNB was not forced to act by a speculative run. No financial crisis forced its hand, and, in theory, the SNB’s dAll Related | More on Greece
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