A Hamiltonian moment
[N]ow the EMU stool finally has all three legs: a common currency, one central bank, and a credible commitment to a unified fiscal policy.
[…]Europe’s fiscal breakthrough drives an important wedge between the overvalued US dollar and the undervalued euro. Recent trading in foreign-exchange markets now seems to be catching on to this. But there is a long way to go. Notwithstanding a surge in June and early July, the broad euro index remains 14% below its October 2009 high in real terms, whereas the dollar, despite weakening in recent weeks, remains 29% above its July 2011 low. My prediction of a 35% drop in the broad dollar index is premised on the belief that this is just the beginning of a long-overdue realignment between the world’s two major currencies.
From American to European Exceptionalism
By: Stephen S. Roach – Yale University
A Rooseveltian moment
However, to hail the Recovery Fund as Europe’s Hamiltonian moment, or even as a game changer, is to grossly underestimate the likely need of the Eurozone’s highly indebted countries for large-scale official support to keep them afloat. Especially if the Recovery Fund is the temporary one-off move it is now being billed as, it will hardly have come anywhere close to solving the sovereign debt problems of the Eurozone’s highly indebted periphery.
Two cheers for the European Recovery Fund
By: Desmond Lachman – American Enterprise Institute
…or neither!
Be that as it may, the eurozone remains internally unbalanced. This also becomes apparent if one looks at manufacturing output in Southern Europe. Unlike domestic sectors, the region’s manufacturers must compete internationally, and therefore have suffered the most from high relative prices. Even before the coronavirus crisis, manufacturing output in Italy was 19% below its level in the autumn of 2007, just before the real economy reacted to the financial crisis; in Spain, it was 21% lower. The downward trend has continued during the pandemic, widening the output gaps to 35% and 34%, respectively.The new EU recovery fund is meant to address this fiasco, but money cannot solve the problem of distorted relative goods prices within the eurozone.
The Euro Crisis’s New Clothes
By: Hans-Werner Sinn – University of Munich
A panel of European economists respond to four questions related to the Recovery Fund
Below are the answers to two of the questions:
European Economic Recovery
By: University of Chicago
