* 17 Nobel prize winning economists debate euro zone
* Say euro zone break-up would be easier if Germany left
* Some believe zone will emerge stronger from crisis
By Eva Kuehnen
LINDAU, Germany, Aug 26 The finest economic minds in the world believe the euro zone will survive its crippling debt crisis, but think that if the bloc splinters it would make more sense for powerhouse Germany and not stricken Greece to break away.
With markets on edge over the huge debt mountains that built up in Europe and the United States during the global financial crisis, 17 economics Nobel Prize winners gathered this week on the picturesque island of Lindau on Lake Constance in southern Germany to discuss the discipline.
Among them are Joseph Stiglitz, who shared the 2001 Nobel Prize for work on how markets cope with asymmetric information, Myron Scholes who won in 1997 for his work on derivatives, and Robert Mundell, a winner in 1999 for his analysis of optimum currency areas.
"I don't think the euro is on the verge of collapsing," said Mundell. Europe needs to move towards "something like the equivalent of the United States of Europe," he added.
The turmoil seems a world away in tranquil Lindau, where conference participants sipped cool drinks on the terrace of the lake-front conference centre, while pedal boats -- some shaped like swans -- rocked up and down in the swell.
But the debate has been intense. Big topics of discussion have been the U.S. economic slowdown and whether a third round of quantitative easing, so-called QE3, from the Federal Reserve would help. Most think it wouldn't.
The stimulus versus austerity debate has also been fierce, but the euro zone's woes, and the threat of a breakup, have taken centre stage.
"It is very difficult to unscramble a scrambled egg," said Stiglitz, while acknowledging that a discussion was under way on whether there was "an optimal way of disintegrating".
"A consensus is emerging among economists which is it would be better in terms of contractual complexity for Germany to leave than for Greece to leave," he said.
Should debt-ridden countries like Greece leave the euro area, their national currencies would devalue, making it more difficult to repay euro-denominated debt.
Were a stronger country like Germany to leave, the argument goes, it would be better placed to service its debt because its currency would probably rise against the euro. Therefore the struggle to extract itself from the contractual maze of leaving the bloc would be greatly diminished.
Left unsaid was whether a euro zone that didn't include Germany would still make any sense.
The launch of the single currency project in 1999 was a triumph of politics over economics. Many experts questioned at the time whether a group of disparate countries could share a currency and common monetary policy without relinquishing sovereignty over their budgets.
These initial doubts now seem prescient. After a successful first decade, the euro zone finds itself in the midst of an existential crisis.
Three of its members -- Greece, Ireland and Portugal -- have required bailouts due to their shaky finances and other countries like Spain and Italy are now under threat. Meanwhile, opposition to further rescues is building in Europe's paymaster Germany.
Economists are relatively new to Lindau, which has hosted annual meetings of Nobel laureates since the 1950s as a part of a "post-war reconciliation initiative", initially for physics, chemistry, physiology and medicine.
In 2004, economists were added and will now meet here every three years. It was their first gathering since the global financial crisis broke out in 2008, damaging the discipline's reputation.
Across the street from the conference centre, banners hang on the old city wall of Lindau: "The world is not for sale", "Another Europe for another world" and "Shame on you 'nobel' economists, bringing the world down with your neo-liberal theories".
Back at the conference, the mood is more upbeat. "You need a real crisis, before you have reforms," Edward Prescott, who shared the Nobel Prize for economics with Finn Kydland in 2004, told Reuters. "But don't just put on band-aid," he added.
"I'm optimistic. Europe has to reform. They are going to sit down, agree and implement reforms. And then Europe will boom and overtake the United States," Prescott said.
(Editing by Noah Barkin and Toby Chopra)