Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
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,

Even if that were true, it would still be significant. Recessions are not additive - a 20 % drop in output every twenty years does a lot more damage than a 2 % drop every other year.

But it is not, in fact, true. There was no compulsion under the old system to devalue from one fixed exchange rate to another (a move which is almost always stupid). You had the option to float your currency instead (as the British did when they got tired of subsidising BuBa irresponsibility), which relieves the need for AusterityTM after depreciation, because you are not committing to defending the new exchange rate - if "the markets" want to bet that they can crash your currency, they'll have to find some other sucker than your central bank.

Now, they're back to paying the interest rates they were paying before the euro came along

Before the Euro, they only had to pay that interest on their foreign debt (in a floating rate regime, the central bank has complete control of the domestic policy rate). Now they have to pay it on both foreign and domestic debt. Which means that interest rate movements to close the foreign deficit depresses domestic economic activity, and therewith the ability to generate the wealth required to close the foreign deficit.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Jun 2nd, 2011 at 02:45:50 PM EST
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