Hyperinflation in the Euro Area?

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Outside Germany’s academic sector, there is strong support for the idea that an increase in the European Central Bank’s money supply would inevitably lead to high inflation or even hyperinflation. This essay explores the question of whether and how high inflation or hyperinflation could rise in the euro zone. This work is based on theoretical considerations of hyperinflation, and outlines a possible scenario in which the latter could actually become a reality. The thesis of this article is that the greatest danger to the euro zone comes from an exit of Italy and/or Spain. COVID-19 has increased the risk due to very different economic developments in different countries in the euro zone, and Italy and Spain have to reckon with a dramatic increase in public debt, weak economic growth, and a deterioration on the labor market. The main problem is not that the euro zone would not help Italy or Spain, but rather that the people in these countries may feel that aid is not enough. Therefore, an exit could become a serious option. If these countries leave the euro, then they would likely opt for an orderly exit, which means Italy and/or Spain would join EMS II after a one-time devaluation and not leave the EU. However, if these countries do not opt for an orderly exit, a disorderly exit would result in a high risk of hyperinflation.