Professor Philip Lane:

I do not think there is a single answer on that. The way I phrased it in the report - I think in the opening statement - is outside the euro the crisis would have been different. One would have had, I think, a deeper crisis initially because the currency would have collapsed in value. There would have been very large increases in interest rates because to protect the currency interest rates would have gone up. What would have been the consequences? One would have had a lot of bankruptcies just as, say, in Iceland one saw the banks going bankrupt. So in part there is a benefit to that because the foreign creditors would have taken a hit. So some of the losses would have been transferred outward.

On the other hand there would have been a lot of financial distress here. With devaluation there is a big distributional effect because with import prices going up, consumers would have taken a big hit initially. On the other hand with the weaker currency maybe after two or three years, recovery would have kicked in more quickly. So one has a very unstable short term, but maybe a faster recovery. On the weighting of stability versus other factors, people will have different opinions. It is an interesting-----