A Spanish Exit From the Euro?

Spain's alternatives are to grind down nominal wages over years, or exit the Euro. Which would you choose?

As noted in earlier posts, my MBA students here are keenly interested in the topic of the future (if there is one) of the Euro, given that China holds lots of Euro-denominated financial assets, and given that Euroland is China's biggest export market.

As Paul Krugman notes, the alternatives to a breakup of the Euro have to be Europe-wide solutions. And so the solution, if there is one, involves accepting a higher rate of inflation for Europe as a whole and that particularly means higher inflation in Germany.

The logic of exiting the Euro is that by repudiating all debts, devaluing, and starting over, Spanish wages would fall, but most people would have jobs.

In addition, so goes the logic, psychologically it would be much better to take your pain all at once. You don't cut the cat's tail off an inch at a time.

Is this thinkable? Is this inevitable?

Watch Paul Krugman on Europe 'Doing the Unthinkable' on PBS. See more from PBS NewsHour.