A friend recently mused that, if the euroarea periphery were not in a single currency area, the crisis we’ve seen so far would look a lot more like the 1997-98 East Asia crisis. Greece would have ‘fallen’, and contagion would have knocked down the remaining ‘weak’ countries. Bear in mind the endogeneity of such contagion: even if
Neighbour n looks good at
time t, it probably looks different at
t+1, after the first-faller has been knocked down, because
Neighbour n has suffered a trade-weighted appreciation. Suddenly the outlook has changed …
My friend made this remark, I believe, in the spirit of, “Whew. It could’ve been a lot worse: It coulda been like Asia ’97”. At least that’s how I took it. But with a moment’s reflection, I thought it worthwhile turning that around: If you were a eurozone-5 citizen, would you rather be where you are, or where you would be if your path resembled that of an Asia-Crisis-5 economy?
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