Daily Archives: January 5, 2010

What would have happened during the financial crisis if the euro had not existed? The short answer is that there would have been currency crises among its members. The currencies of Greece, Ireland, Italy, Portugal and Spain would surely have fallen sharply against the old D-Mark. That is the outcome the creators of the eurozone wished to avoid. They have been successful. But, if the exchange rate cannot adjust, something else must instead. That “something else” is the economies of peripheral eurozone member countries. They are locked into competitive disinflation against Germany, the world’s foremost exporter of very high-quality manufactures. I wish them luck.

The eurozone matters. Its economy is almost as big as that of the US. It is three times bigger than those of Japan or China. So far, it has passed its initial test. Nevertheless, the peak to trough decline of the US economy was only 3.8 per cent (second quarter 2008 to second quarter 2009), while the eurozone’s was 5.1 per cent (first quarter 2008 to second quarter 2009). 

From the FT:
A 10-year plan to close the budget deficit – John Podesta and Michael Ettlinger

Refocus the regulatory debate on essentials – Nicholas Brady

Asia must loosen the grip of its exporters – Lorenzo Bini Smaghi
Inflation angst troubles investors – Sushil Wadhwani

From elsewhere:
No to Bernanke – Baseline Scenarios
Best and highest use – Economic Principals
The end of the revolution is nigh – Free Exchange
‘The once and future Fed policy error?’ – Naked Capitalism