According to some experts, what is required to "fix" the eurozone is not tighter fiscal policies but a strong devaluation of the euro. Commentators such as Nouriel Roubini advocate a depreciation of up to 30 percent. Between April and December last year, the euro weakened against the US dollar by almost 13 percent, yet economic activity has continued to slide. Why then should a depreciation of 30 percent revive the economy? We suggest that the recommendation for currency depreciation to fix the eurozone is based on an erroneous framework of thinking. If anything, such a policy can only make things much worse as far as eurozone economic conditions are concerned.
Frank Shostak is an adjunct scholar of the Mises Institute and a frequent contributor to Mises.org. His consulting firm, Applied Austrian School Economics, provides in-depth assessments and reports of financial markets and global economies. Send him mail. See Frank Shostak's article archives.
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