Can the Euro Zone Use Beggar-Thy-Neighbor Policies Against the Rest of the World?

March 8th, 2015
in Op Ed

by Dirk Ehnts, Econoblog101

The euro zone is running a policy now that relies on weakening the euro. The depreciation of the euro will increase aggregate demand, at least in the medium to long-term, so policy makers seem to hope. However, it is widely unrealistic to think that other countries and regions will not retaliate with their own economic policies, quantitative easing and otherwise.

Follow up:

The NY Times reported some two weeks ago:

A number of countries - China most prominent among them - have long acted to hold down the value of their currencies against the dollar, helping their industries by keeping exports to American consumers cheaper and making goods from the United States more expensive.

And while every president from Bill Clinton on has repeatedly criticized the practice, none have ever taken formal action against China or any other nation to try to stop it.

Now, a growing bipartisan majority in Congress is coalescing around a demand that could derail President Obama's ambitious trade agenda before it really gets moving: include a robust attack on international currency manipulation or no deal.

The logic of turning the euro zone into a net exporter and running this as an economic strategy is flawed. While inside the euro zone the trade partners with the current account deficits had no choice but to take that position (what economic policy existing at that time could you have used to prevent them?) are in a deep crisis, the rest of the world has nominal exchange rates which can be adjusted. It will be interesting to see what the political economy dimension of this is. US gets TTIP, the euro zone gets a low exchange rate vis-a-vis the US dollar? Whatever it will be, the people get to vote on whatever those in power decide on.

Make a Comment

Econintersect wants your comments, data and opinion on the articles posted.  As the internet is a "war zone" of trolls, hackers and spammers - Econintersect must balance its defences against ease of commenting.  We have joined with Livefyre to manage our comment streams.

To comment, just click the "Sign In" button at the top-left corner of the comment box below. You can create a commenting account using your favorite social network such as Twitter, Facebook, Google+, LinkedIn or Open ID - or open a Livefyre account using your email address.



Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day


Asia / Pacific
Middle East / Africa
USA Government

RSS Feeds / Social Media

Combined Econintersect Feed

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution



  Top Economics Site Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2016 Econintersect LLC - all rights reserved