Prize (for a) failure

British clothing retailer Simon Wolfson (known to his friends in the House of Lords as Baron Wolfson of Aspley Guise) announced several days ago the establishment of the Wolfson Economics Prize (read the press release here).   The prize, worth a cool £250,000 (about $400,000)–second only to the Nobel Prize in Economics, in terms of cash value– “…will be awarded to the person who is able to articulate how best to manage the orderly exit of one of more member states from the European Monetary Union.”

Talk about your high-stakes essay contest!

According to Lord Wolfson: “There is now a real possibility that political or economic pressure may force one or more states to leave the euro.  If this process is mismanaged it could threaten European savings, employment and the stability of the international banking system.  This prize aims to ensure that high quality economic thought is given to how the euro might be restructured into more stable currencies.”

I’ve got nothing against contingency planning.  Nor do I begrudge an enterprising economist a quarter of a million quid for a well argued essay.  But the euro is here to stay and it is unlikely that any of the members will be leaving soon.

Sure, there are a number of practical obstacles to withdrawing from the eurozone: everything from reprogramming computers and ATMs, to legal questions surrounding redenomination of debts, to political questions about exactly how to withdraw from a treaty that has no exit clause.

But the most serious obstacles have do to with the incentives to exit.

Writing in the Financial Times last month, Ian Bremmer, argues that Greece is not leaving the eurozone, “not now, not ever.”  Even if the technical and legal barriers could be overcome, he argues that Greece’s limited (relative to the rest of the eurozone) exposure to foreign trade, large euro-denominated debts, and competition from lower-cost non-euro neighbors (e.g., Turkey), would limit the benefits of a euro-exit.

On the other end of the eurozone, Germany’s exit seems equally unlikely.  Chancellor Angela Merkel is committed to saving the euro (with as little cost to the German taxpayer as possible).  And why shouldn’t she be? If Germany were to leave the euro, the new mark would be so expensive that German exporters would be priced out of world markets.

So, although Greece appears to be on its way to some sort of debt default/rescheduling, it is unlikely that it–or any other country is about to leave the eurozone.

But, just in case I’m wrong, entries for the Wolfson Prize are due by January 31st, 2012.

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