Leaving the euro-zone would clearly have adverse consequences for households in the exiting country as higher import prices hit spending power. But they could reasonably believe that those costs would be outweighed by the benefits of less aggressive austerity or a better economic outlook.
This Focus is adapted from a section of Capital Economics’ winning submission to the Wolfson Economics Prize 2012. The full document, which was selected from over 400 entries, is available on our website.
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