THE END OF THE EURO IS NOT ABOUT AUSTERITY

The linked column from today’s NY Times, title as above, http://economix.blogs.nytimes.com/2012/06/21/the-end-of-the-euro-is-not-about-austerity/?ref=business, was written by Simon Johnson. Mr. Johnson is a former Chief Economist at the IMF and is currently a Professor at MIT’s Sloan School of Management.

The column points-out that, as the various Nations joined the EuroZone, they linked their individual currencies to the common EURO at a fixed exchange rate, based on the previous value of at the the time they joined the EuroZone. Further, they promised never to change that linkage. That is not at all realistic!

The problem is that that linkage assumed that all (now) seventeen Countries’ Economies would grow at the same rate. Obviously, that was a fallacy that is now coming home to roost. It withdrew the ability of countries to adjust their own currencies–to devalue (for poor growth) or re-value (for strong performance) based on their respective Economies.

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  1. #1 by maxcat07 on June 22, 2012 - 3:46 AM

    We can’t even get 50 states to agree who are supposedly under the same flag!

  2. #2 by cheekos on June 22, 2012 - 4:51 AM

    I believe the difference is political in the US; however, in Europe, the countries have different cultures, mindsets and agendas. Germans are truly scared of inflation, going back to the hyperinflation of 1925. The saying is that it took a wheelbarrow full of the old, OLD Deutschemarks to buy a loaf of bread.. Whereas the French, Italians, Spanish, etc. don’t mind rolling-up the Tab.

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