The distressed countries in Europe’s southern periphery fear exiting or being expelled from the currency union, partly because they believe they would lose all the euro’s advantages permanently. This fear could be laid to rest by making the eurozone an open currency union.

The core idea is to offer exiting countries the status of associated member, allowing them to adopt their own currency temporarily with the option to return to the euro at a later stage. An associated member would spare itself the trauma of a real depreciation inside the eurozone, which can only be achieved through a reduction of prices and wages that almost unavoidably entails economic contraction and mass unemployment. Moreover, an associated member could receive financial help from the other eurozone countries. It could adjust its exchange rate quickly to restore competitiveness and, once it had fulfilled all reform commitments, could fully rejoin the eurozone.

A longstanding arrangement, the European Exchange Rate Mechanism II, could provide a basis for such a currency “association”. Conceived for EU member states that have not yet introduced the euro, the ERM II at present includes Denmark, Latvia and Lithuania. All countries that have adopted the euro since 2000 have done so on condition of spending a two-year period within ERM II without stress, staying within a range of ±15 per cent with respect to a central rate against the euro. This mechanism could be expanded to allow it to harbour, after a transition period, countries leaving the eurozone, too.