What happens if the euro falls apart

Balance sheets that were thought to be balanced in the absence of redenomination risk will become severely unbalanced and widespread default, insolvency and bankruptcy will result. Greek domestic demand and output will collapse.

Without continued support from the troika facilities and even from the ECB for the exiting member state s , there could be cash points running out, depositors and savers besieging banks, riots and shortages of food and other essentials. An exiting country, facing massive disruptions in its international capital account transactions would need to impose strict capital and foreign exchange controls following exit if some semblance of financial order is to be maintained.

However, Article 63 of the Consolidated Version of the Treaty on the Functioning of the European Union does seem to rule out the imposition of capital controls and payments controls not only between 27 members of the EU regardless of whether they are members of the Euro Area or not , but also between members of the EU and countries outside the EU, so-called third parties.

Fortunately, for every Article in the TEU and the TFEU asserting that something is either required or not allowed, there is another Article or Protocol asserting the opposite or creating a loophole. TFEU Articles , , and invoke the threat of war, serious internal disturbances and other unforeseen contingencies as grounds for overriding Treaty clauses and other legislation, and provide mechanisms for implementing such overrides.

Articles provide a blueprint for how the European Commission, other member states and the European Court of Justice should handle a member state whose actions are not in compliance with the Treaty.

This seems tailor made for countries introducing capital controls following an exit from the EMU. Good Will is Essential In the EU, as in life, love normally finds a way around mere Treaty-based and legal obstacles to common sense. But good will is essential. If a country were to exit in a haze of confrontation and hostility, it is unlikely it would be shown the kind of forbearance that is in principle possible in a consensual exit.

In the worst-case scenario, exit from the Euro Area would precipitate exit from the EU. But Greece like Portugal, Spain and Italy does not have the persistent nominal rigidities found in more Keynesian economies like the US, the UK and perhaps even Ireland that would turn a depreciation of the nominal exchange rate into a lasting competitive advantage.

Most Europeans believe the EU could fall apart within the next two decades, according to a new study. Research published this week showed that levels of support for membership of the European Union are high — but so is pessimism about the future of the bloc. It found that in every member state except Spain, the majority of voters believe the EU will fall apart within the next 10 to 20 years. The data showed that most Europeans saw the collapse of the single market as the biggest loss should the EU break down, followed by free travel across borders and the freedom to live and work in other countries.

Full Terms and Conditions apply to all Subscriptions. Or, if you are already a subscriber Sign in. Other options. Close drawer menu Financial Times International Edition. Search the FT Search. World Show more World. However, Brexit has created uncertainty surrounding trade deals with the European Union member-states.

The European Central Bank ECB had introduced negative interest rates in a desperate attempt to spur growth, and for several years, the European economy responded fairly well. However, challenges remain for euro-based countries.

GDP represents the total output of goods and services produced by an economy. The eurozone enjoyed its best year in in a decade showing that it had finally emerged from the debt crisis that threatened the euro. Other countries that suffered after the Great Recession of became stronger and experienced lower unemployment.

While the eurozone was finally on an economic upswing, the recession caused by the global financial crisis severely impacted the eurozone's economy. Unemployment rose to 7. Under this agreement, 26 separate European countries agreed to allow free movement of people, goods, services, and capital within the borders of the eurozone. Not every member of the EU is also a member of Schengen, and not every participant in Schengen is part of the EU , but a collapse of the euro would nonetheless affect countries inside and outside of the region.

Economically, it is possible to have competing currencies in the same economic zone. There is nothing preventing Germans or Italians from trading in both German Deutsche marks and Italian lira, for example.

That scenario only seems unlikely because an end to the euro would increase pressure to dissolve the entire EU experiment. If Schengen were to fall, countries inside the eurozone would need to implement border controls, checkpoints, and other internal regulations previously eliminated in the Schengen Agreement.

The costs of this would spill over into private businesses, particularly those relying on continental transportation or tourism. To the extent that import quotas or tariffs are implemented by various member nations, and to the extent that those measures are reciprocated elsewhere, there would be a corresponding decline in international trade and economic growth. A collapse of the euro would affect more countries than those in Europe, although in uncertain ways.

Other regions, particularly major trading partners in North America and Asia, would face financial and possibly political consequences. Many of the supposed economic benefits inside the EU do not transfer to external trading partners. The freedoms of labor and capital do not extend to the United States or China, for example, unless foreign consumers and producers gain access to a member country.

As a result, it can be difficult to predict the potential fallout since it is possible that even stronger pro-growth policies could replace the bureaucratic super-state seated in Brussels. On the other hand, increased economic isolationism from nationalist movements could threaten international businesses and financial markets. In the short term, markets would likely react negatively to added uncertainty.

The EU is a known commodity, even if imperfect, and markets like predictability. However, in the longer term, the markets could benefit from a once-again growing Europe.