Monday, July 16, 2012
The Euro's Fate
July 16, 2012
Against the intense media glare trained on crucial recent events of Europe, notably Greece's election and the latest summit of European Union leaders, one important development was all but obscured. Airbus, the European consortium that is the main rival to Boeing, recently announced that it will establish its first production facility in the U.S.
There, in sharp relief, is the tangible evidence of the crisis that besets Europe's economy; the only way Airbus can compete with the rest of the world is to move away from the Old Country. Just as BMW and Mercedes-Benz before it, Airbus is moving to America's Deep South in search of what it can't find in Southern Europe -- a highly productive, low-cost workforce that can compete globally, with the help of a competitive currency.
That's precisely what Europe, with unemployment levels not seen since the 1930s, needs -- and what it sorely lacks. The cure for deficits is growth. And the quickest way to spur growth is via monetary reflation.
A still-cheaper euro -- at parity with the U.S. dollar -- can restore Europe's competitiveness, end its debt crisis, and save its currency. It worked before, in the last decade, and we're now more than halfway to parity, from a peak of $1.60 in 2008 to around $1.22. After two years of haircuts and half-measures, the only way left to save the euro may be to debase the euro.