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The Only Hope… A (Much) Cheaper Euro

Posted by Eric LeRiche | May 12, 2010 .

Look. You can’t borrow your way out of debt. More loans won’t do it – you have to save and grow your way out. Saving and growing require an upswing in productivity.

Thus the struggling PIGS – Portugal, Italy, Spain, etc. – do not just have a debt problem, they have an economic growth problem. They have to get more productive. At the end of the day, this means exporting more… which means taking advantage of a cheaper euro.

From a structural standpoint, the euro should be trading much, much lower. From a pure growth potential standpoint, the economic fundamentals of the eurozone are terrible compared to the United States. A cheaper euro would both lessen the debt burden for struggling eurozone countries and increase the odds of growth via more competitive exports.

This is a big reason why we will see a much lower euro from here… and why the powers that be might even be secretly praying for that to happen. Further decline is just a matter of time. It only makes sense, given the trashing of credibility and the temptation to devalue.

There are further reasons why Europe might be better off with no euro– why scrapping the whole sorry project might truly be the best thing – but that’s a discussion for another day.

Warm Regards,

Eric$

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