Country opting out of euro 'likely to face several disadvantages’ – Economist Gordon Cordina

"A country opting out of the euro is likely to face a number of disadvantages: in terms of doing business with eurozone member states and the fact that an exit from the system might be interpreted as a sign of economic weakness," Economist Gordon Cordina told MaltaToday when contacted and asked the repercussions a country would face if it exited the eurozone.

"We have to face openly the possibility of a euro-break up," said Erkki Tuomioja, Finland's veteran foreign minister and a member of the Social Democratic Party, one of six that make up the country's coalition government.

"It is not something that anybody - even the True Finns [eurosceptic party] - are advocating in Finland, let alone the government. But we have to be prepared," he told The Daily Telegraph.

The Nordic state of Finland is battening down the hatches for a full-blown currency crisis as tensions in the eurozone mount and has said it will not tolerate further bail-out creep or fiscal union by stealth.

However, Finland's government scrambled to distance itself from comments made by its foreign minister urging European officials to prepare for a break-up of the eurozone.

Alex Stubb, Minister for European Affairs and Foreign Trade, said the nation remains "100%" committed to preserving the currency union and is not readying for any "doomsday scenarios."

Can a country decide to no longer utilise the euro? MaltaToday asked Cordina.

"There may be some appeal to this in the current turmoil, but there might also be significant costs involved. 

"It is difficult to envisage a scenario where the euro would cease to exist without being replaced by another international currency. This is because if the euro were to be somehow retired from use, people from all over the eurozone would rush to exchange their euro into what is perceived to be a strong national currency, say the German one, and that would effectively become the currency of the entire area."

Cordina added that "the main problem is not the existence of the euro but the fact that governments and countries have borrowed in excess of their ability to repay.

"The euro may have played a part in enabling these governments to borrow in excess of what they could afford in the medium term, as financial markets often viewed euro debt as bearing more or less the same risk, whether it was issued by Germany or by Greece.

"In fact, the countries which are nowadays facing problems to repay their debts may be said to have missed a golden opportunity, by not using the proceeds of their cheap borrowing to undertake productive investment which would by now have reaped significant dividends on terms of economic growth.

"A country with these type of problems would normally pay the price in terms of higher interest rates and a depreciating currency. Its citizens would thus be faced with higher borrowing costs, and the value of their savings would be worth less when utilised to purchase goods and services from abroad.

"For a country which is sharing its currency with others, these problems would to an extent be passed on to the other countries as well. Thus, excessive spending and debt accumulating by Greece would be reflected in higher borrowing costs and a depreciating currency by all countries within the euro area. Hence the anxiety of those countries who have had nothing at all with the generation of the present crisis."

'No evacuation plan for member state to abandon eurozone' - Economist Edward Scicluna

According to Tuomioja, whose intervention is the bluntest warning to date by a senior eurozone minister,  "there is a consensus that a eurozone break-up would cost more in the short-run or medium-run than managing the crisis".

Edward Scicluna (pictured), economist and Labour MEP, said: "It is both presumptuous and illegal for a boat to sail without a life raft and an evacuation plan. Actually the EU Treaties forgot both.

"Admittedly the eurozone was meant to be a journey that intentionally does not look back. It is still like that today. There is no evacuation plan for a member state to leave the eurozone.

"But that does not mean that we should not think about having one. It should have been there from the very beginning. The talk by Finland should be seen in the context of prudence and not an invitation for the zone to split.  But the level of brinkmanship in the whole saga is unbelievable.

"I am not known to be a blinkered europhile but from my three years experience in Brussels I truly believe that the euro is here to stay.

"We are preparing various remedial possibilities including the introduction of a Eurobond and redemption bonds. I am involved in this report on behalf of my group (S&D) and am seeing some progress.

"In case of a break-up there will be great exchange rate movements, revaluations and devaluations. The former would be seen in Germany, Austria and The Netherlands while the latter would be seen in countries with debts higher that 60%. That would include Malta.

"My advice to people with financial investment is however to stay put. More people drowned when abandoning their boat during a storm than those who stayed on board. I believe that this should apply as well to our position in the Eurozone."

The issue of euro break-up may come to a head in October as EU-IMF Troika inspectors report back on Greek bail-out compliance. Pleas from Athens for two extra years to stretch out its austerity regime have run into fierce resistance from creditor powers.