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Institutionalizing Eurozone Exit: A Modified NEWNEY Approach

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  • Steffen Huck
  • Justin Mattias Valasek

Abstract

In this note, we argue that the Eurozone needs an institutional exit mechanism to enhance Eurozone stability, and propose modifications to the Dobbs' NEWNEY mechanism, the only mechanism that satisfies the twin properties of eliminating incentives for intra-Eurozone capital flight and maintaining Eurozone price stability. Our modifications eliminate moral hazard, allow for a fair distribution of costs (between and within countries) and are also appropriate for the exit of a fiscally strong country.

Suggested Citation

  • Steffen Huck & Justin Mattias Valasek, 2013. "Institutionalizing Eurozone Exit: A Modified NEWNEY Approach," CESifo Working Paper Series 4116, CESifo.
    • Handle: RePEc:ces:ceswps:_4116
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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp4116.pdf
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    References listed on IDEAS

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    1. Hans-Werner Sinn, 2012. "Target Losses in Case of a Euro Breakup," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 13(04), pages 51-58, December.
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    Cited by:

    1. Fahrholz, Christian & Wójcik, Cezary, 2013. "The Eurozone needs exit rules," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4665-4674.

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    More about this item

    Keywords

    Eurozone; Eurozone exit; price stability;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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