The Real Solution to the Euro Crisis? Devaluation!

English: €2 commemorative coin Euro Zone 2007 ...
English: €2 commemorative coin Euro Zone 2007 50th Anniversary of the Signature of the Treaty of Rome Français : Pièce commémorative de 2 euros de la Zone Euro en 2007 pour le 50e anniversaire de la signature du Traité de Rome (Photo credit: Wikipedia)
The Euro Crisis started two years ago and thanks to Ms. Merkel's single-minded obsessive focus on austerity and debt reduction, we haven't moved one step closer to resolution of the crisis. The immediate result of this pig-headed approach is that default becomes the only alternative to devalution. Available fixes for the Euro mess are by-passed and the easiest one (devaluation) is simply ignored.


Because our narrow-minded, chauvinistic politicians can't think in Europe-wide terms. You have to consider the Euro-zone as a whole. If five out of the 17 member countries are in deep trouble (Greece, Ireland, Portugal, Spain and lately Italy) and a major 6th one is about to sink in recession (France) not to mention other smaller ones that are suffering too (Belgium, the Netherlands), why, it's obvious: you should stop pretending the Euro-zone currency is in perfect health! 

It's not. 

Its value on currency markets quite clearly does NOT reflect the real state of the Euro-zone economies. It makes no sense at all that the Euro should be higher than the dollar: the US is slowly climbing out of recession while Europe is falling ever deeper into it. The Euro could perhaps be a little above the dollar but not some 25% above it! That's way too much.

The economic solution to such a situation is a classic: devalue! We all know the reasoning: devaluing the currency makes exports cheaper giving them a boost. Et voilà! The economic machine whirrs up again. Exactly what the suffering Southern Europeans need, but mind you, it's also going to help the Germans. Their exports will soar and everybody will be happy again in Europe, and, incidentally, the rest of the world too. Because a sick Europe is making the whole world sick, including China, India, Brazil - the emerging economies that had pulled us out of the 2008 slump and are now in pain as they find they aren't exporting to Europe anywhere near the levels of two years ago. Yes, two years ago when the Euro crisis started...

So why the hell doesn't our political class wake up? I fervently hope Draghi is listening and that the ECB Board meeting will take the right economic decision today and lower the prime interest rate...That would be a first healthy step towards devaluation aand re-aligning the Euro with the dollar.
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