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The euro does not behave differently than the DM did. The only difference is that instead of one big crisis, you had smaller crisis every few years, with devaluation, austerity (yes, already back then, that was the unavoidable result of a devaluation) and loss of wealth for all. It just happened in 10% increments rather than the 30-40% increment that seems needed today.

The euro was designed from the start to be a "strong" currency (call it an Austrian, goldbug currency if you will) and the Germans made it clear that it would be managed that way, and they were openly skeptical that the Southern countries' economies could cope. There was a spurt of policies to meet the criteria in the 90s, and then the windfall of suddenly lower interest rates came along in these countries, giving them a 10-year easy ride.

Now, they're back to paying the interest rates they were paying before the euro came along - except that they are no longer used to such a burden, and have been spending the money on other stuff in the meantime (and such spending was largely unfair or bubbly).

And they never made the case for a political union in the meantime. After 10 years of saying "we're in" and behaving as if they were "normal" members of the zone despite being less competitive in terms-of-trade.

Sure, Germany should have worried about that unsustainability, but, again, they have an easier exit from the current crisis than the weaker countries, and they have, in today's Europe, no compelling political reason to make an effort.

Wind power

by Jerome a Paris (etg@eurotrib.com) on Thu Jun 2nd, 2011 at 08:20:31 AM EST
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