Friday, December 17, 2010

Extreme Measures: The Euro Breaks Up

Wall Street Journal
December 17, 2010

Some economists are convinced that the euro zone will have to break up. The fundamental problem, they say, is that some countries have become deeply uncompetitive inside the euro, because their labor and other business costs have risen faster than in more efficient economies such as Germany.

Reintroducing a national currency would allow a country to lower its exchange rate, making its goods more affordable in the rest of Europe. Then an export-led recovery could make it much easier to repair government and private-sector finances.

"Countries in the periphery might do well to consider the advantages of an early exit from the euro, which might facilitate the needed fiscal adjustment without provoking the deepest of domestic economic recessions," says Desmond Lachman, a fellow at the American Enterprise Institute.


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