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We have a euro currency crisis, but the problem is that the euro is too strong!
Presumably you find a contradiction there? Let Krugman clear it out for you: The Strength of a Failing Euro (Wonkish)
So what about the European periphery? Well, those are economies in big trouble -- but they also offer very high interest rates. And more to the point, the relevant arbitrage in the foreign exchange market is between bunds and Treasuries; if the euro zone does splinter, the question is what the value of the remaining core will be, and it's presumably quite high.

The only situation in which you would expect the troubles of Greece et al to mean a weak euro would be if you expected the ECB to help resolve the problems by pursuing an inflationary policy. There's actually a pretty good case for doing that -- but the Germans would never allow it.

So the euro is strong even as the euro system, the euro as a project, turns into a train wreck.



Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Fri Jun 3rd, 2011 at 06:45:14 AM EST
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