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It bears repeating at this point that the Eurozone as a whole has balanced external trade and negligible foreign-denominated debt so the entire Eurozone crisis is one of internal redistribution. There is no fundamental pressure on the exchange rate (if you take the view that trade-weighing is a good proxy for the "fundamentals" of exchange rates) and there is no collective risk of insolvency (as all the debt overhang is in the fiat currency that the ECB issues).

This is partly why it's utter madness that the Serious People of Europe continue argue for IMF involvement. Why should the IMF get involved in loaning Euros to Euro countries, when there's a perfectly functional ECB? And that's why especially the BRICs are increasingly annoyed by EU suggestions for IMF involvement, saying (not without irony) that the Eurozone "hasn't done its homework" and that it has sufficient resources.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker

by Migeru (migeru at eurotrib dot com) on Sat Feb 18th, 2012 at 10:53:37 AM EST
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