A substantially lower US$ would give breathing room in world oil markets for everyone else. And the lost income opportunities for Chinese exporters in their second largest market might be offset some by the increased income opportunities in their largest market, the EU.
If that scenario comes to pass, what are the effects on the EU?
On one hand, the EU sells capital equipment to the US (and O&M deals for it). If those deals become unprofitable overnight...
On the other hand, American oil imports would fall off a cliff, which would avert/abate the next oil shock. Whether the EU would be institutionally capable of using that breathing room to its advantage is less clear.
So in the short term, much depends on a number of unknowns, including the precise order in which events happen (most economic events are non-commuting, a fact that quackonomists will happily ignore).
In the medium term, if the € becomes the major currency targeted by countries pursuing a neomercantilist industrial policy, there is no reason to expect the current generation of leadership to perform any better than their American counterparts. One can hope that parliamentary democracy will prove more resistant to quackonomics than the form of elective monarchy the US seems so fond of. But I would not be willing to bet my pension on it.
- Jake If you only spend 20 minutes of the rest of your life on economics, go spend them here.
One can hope that parliamentary democracy will prove more resistant to quackonomics than the form of elective monarchy the US seems so fond of. But I would not be willing to bet my pension on it.
For export-driven growth, the high €/everything exchange rate makes it difficult to gain market share in places apart from places that face external finance constraints which the EU is in a position to relieve in support of exports to hose countries.
For development-driven growth, the reduction in € cost of resource imports gives breathing room in terms of the chicken and the egg problem of consuming energy due to the economic expansion before the full sustainable energy resource to be provided by some of the investments being made by a substantial portion of the development-driven growth policy.
The first is a fight against other export-led growth strategies, the second is exploiting other export-led growth benefit for the benefit of increasing long term economic capacities. I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
If they can, that particular national psychosis can be managed. Otherwise, its a mess. I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
