A Quote by Milton Friedman
Germany's problem, in part, is that it went into the euro at the wrong exchange rate that overvalued the deutsche mark.
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Let's start with the euro. What on earth were we thinking? How could anyone with the faintest grasp of economics have believed it was anything other than sheer insanity to yoke together diverse national economies such as Greece, Ireland, Germany and Finland under a single exchange rate and a single interest rate?
The problem is that, in a world of floating exchange rates, as Italy was before the euro, if one country is subjected to a shock which requires it to cut wages, it cannot do so with a modern kind of control and regulation system. It is much easier to do it by letting the exchange rate change. Only one price has to change, instead of many.
Germans tend to forget now that the euro was largely a Franco-German creation. No country has benefited more from the euro than Germany, both politically and economically. Therefore what has happened as a result of the introduction of the euro is largely Germany's its responsibility.
If a country is an attractive place for foreigners to invest their funds, then that country will have a relatively high exchange rate. If it's an unattractive place, it will have a relatively low exchange rate. Those are the fundamentals that determine the exchange rate in a floating exchange rate system.
The lesson for Asia is; if you have a central bank, have a floating exchange rate; if you want to have a fixed exchange rate, abolish your central bank and adopt a currency board instead. Either extreme; a fixed exchange rate through a currency board, but no central bank, or a central bank plus truly floating exchange rates; either of those is a tenable arrangement. But a pegged exchange rate with a central bank is a recipe for trouble.
The euro is a hybrid of a fixed exchange-rate regime, like the 1980s ERM or the 1930s gold standard, and a state currency.
The exchange rate of the Rand against the dollar, pound or euro makes South Africa an attractive location. The positive side of this is it gives our artists and technicians an opportunity to work.
Italy may well be the main problem. It has benefited most from the euro by having been able to get the euro interest rate instead of what otherwise would have been its own. That would be much higher because Italy has been accumulating so much debt. In the past, Italy has inflated away its debt. The virtue of the euro is that Italy can't do it alone. A tight ECB policy wouldn't permit that to happen again.
In the 20 years before Greece end up with the Euro, efforts to improve competitiveness through exchange rate and adjustments resulted only in temporary gains of competitiveness.
The U.S. berates China for its exchange rate policy, which Washington doesn't like. But one-sided pressure on China to change its exchange rate is misplaced.
A nation's exchange rate is the single most important price in its economy; it will influence the entire range of individual prices, imports and exports, and even the level of economic activity. So it is hard for any government to ignore large swings in its exchange rate.
The uncontrolled increase of the euro rate vis-a-vis the dollar threatens employment growth in the euro area.
The euro is a vital issue for Germany. There is no other country that derives as much benefit from the common domestic market and the monetary union as Germany.
What is the right exchange rate at one point is not necessarily the right exchange rate at another.
Euro was created by Germany, for Germany.
The IMF insisted that both Russia and Brazil maintain their currency at over-valued levels. Who are you protecting when you try to maintain that exchange rate by having high interest rates? You're protecting domestic and foreign firms that have gambled on the exchange rate. And who is paying the price? The small businesses that did not gamble [and no longer can afford loans], the workers who are going to be put out of jobs.
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