A few weeks ago ZeroHedge ran an article outlining the possibilities for the euro after the EU summit. It reached the conclusion that devaluation would be the end point. Joshua Brown reaches a similar conclusion that the only way to save the euro is devalue it, but how do you convince the Germans? The method to do this is the ESM borrowing from the ECB to circumvent the existing rules and limitations of the ECB.

Is it time for Germany to accept the fact that the only way out of economic hell is an export-led recovery, brought about by “dollar parity,” (a one for one exchange rate between dollar and euro) so that peripheral economies can become competitive again?

Is this the part where Germany gets over the fear of 3 to 4% inflation (as opposed to the current 2%) because a bit of inflation is a much better long-term risk than a break-up of the common currency?

Does the ECB need to just suck it up and start printing already? Do they need to blow up (devalue) the euro in order to save it?

Today’s cover story in Barron’s makes a highly compelling case that not only is this the best course of action, it may be the only one left once the austerity mandates and lending facilities have run their course.  The basic idea is that the newly formed and almost funded ESM (Euro Stability Mechanism), which will begin with $500 billion – $100 billion of which is already going to Spain – could borrow from the ECB on an unlimited basis.  This would be the closest thing the Euros have had to what the Fed/Treasury have done here in the states.  It would drive the euro currency value down, allowing Spain and Italy to become more competitive on the global stage for manufacturing, exporting etc, even as spending reforms are adopted.  Germany would bear the brunt of the minor inflation this would induce, but it would benefit from the drastic uptick in economic activity and the cessation of Permanent Crisis Mode that’s frozen so much of the continent (not to mention the threat to the rest of the world that Germany likes to sell to).

Let the currency wars continue. Of course devaluing currencies was exactly what happened during the 1920s and 30s with disasterous consequences globally and it looks as if we are heading down that same path.

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