Harvard economist Martin Feldstein has a new op-ed in the Financial Times about how to save Spain and the rest of the periphery from the grasp of the euro crisis.
Feldstein’s solution: a lower euro. Here’s how he thinks it would help:
A lower value of the euro would reduce the prices of eurozone exports and raise the cost of imports, reducing or eliminating the current account deficits of the peripheral European countries, since about half of their trade is with countries outside the eurozone. The weaker euro would also boost Germany’s net exports, raise German wages and prices and reduce the trade imbalance within the eurozone.
The increase in peripheral country net exports would also raise their gross domestic product and so reverse their recessions that were caused by higher taxes and cuts in government spending. That would make it politically easier to achieve the needed fiscal consolidations. And shifting from recession to growth would raise business incomes and employment, reducing the volume of bad loans and mortgage defaults now hurting the banks.
Feldstein says he’s been talking to eurozone officials over the last few weeks about this, and he says that “these eurozone experts all agreed that a lower value of the euro is necessary for the survival of the single currency.”
Business Insider Emails & Alerts
Site highlights each day to your inbox.