Neil Irwintells Dave Davies about why the euro has exacerbated the current financial depressions in Europe:
Normally what would happen when a country like Greece finds itself unable to pay its debts, is it would experience a run on its currency, and the value of its currency would plummet, and it would default on its debts, and that would be very difficult and very wrenching and not much fun for anybody. But it would also sow the seeds of the next expansion. So if you’re Greece, suddenly your currency would depreciate by 50 percent, and that would make you much more competitive as a tourist destination, your exports would be more competitive, and so you would actually have the seeds of the future growth sown by that depreciation. …
But instead, what we’ve had is an economic collapse in Greece — while they’re still using the euro — so there’s been no depreciation, so they’re having to try and do that depreciation by having internal deflation. They’re trying to have wages fall rather than it just happens automatically because the currency collapses. So what you have is a combination of a very difficult economic situation in Greece and some of the other European countries without the obvious path forward to get out of it and return to growth.
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