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Global Recovery: Assessing Its Durability And Strength

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Executive Summary

The financial crisis not only laid open the fault lines of the global economy, it also put to test one of the world's most ambitious economic cooperation projects: the euro. The debt crisis that is engulPng Greece and other "Fringe" nations of the Eurozone has led many long-term pundits to predict the end of the common currency area. Yet there are many reasons why this is unlikely to happen. The following argument lays out the case that the outcome of the current crisis could actually be a stronger union. When the euro was created, the founding contracts made no explicit mention of an exit mechanism - probably for good reason. A recent legal review by the ECB3 puts it this way: "A Member State's expulsion, whether from the EU or from EMU, [?] may be possible in practical terms - even if only indirectly, in the absence of an explicit Treaty mechanism - but expulsion from either the EU or EMU would be so challenging, conceptually, legally and practically, that its likelihood is close to zero." Expelling an EMU member would also likely have disruptive consequences for other euro countries. Nations considered by the Financial markets to be under similar strain - including Spain, Ireland, Italy, and Portugal - might find it more dif cult and expensive to borrow. And if the problems spread far enough, even countries at the core could be adversely affected as more and more of their closest export markets falter.

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