[quote]Originally posted by powerdoc:
<strong>
Sometimes symbol are more important than reality.</strong><hr></blockquote>
I don't agree. A currency can be an important symbol, yes. But more importantly it's a tool. And unless Europeans want the Euro to become a symbol of an economic fiasco, they'll do well to keep this in mind.
December 31, 2001
Commentary
<a href="
http://interactive.wsj.com/archive/retrieve.cgi?id=SB1009747651965217120.djm" target="_blank">
The Euro Is Here</a>. (registration required)
Now It Needs to Get Stronger.By Arthur B. Laffer, founder and chairman of Laffer Associates, an economic research and consulting firm based in San Diego
[quote]For any lesser goal, the missteps, foibles, embarrassments and absolute travesties the euro has suffered during its prolonged birth would have sufficed to terminate the experiment. But no matter how poorly constructed, improperly implemented and badly executed the euro has been at the hands of Europe's bumbling politicians, we all know full well that Nobel laureate Robert Mundell's vision of a common European currency is fundamentally correct.
The euro simply cannot fail. The era of balkanized monopolies spewing heterogeneous paper spray-painted with portraits of the least attractive people known to have ever lived is over. Tomorrow, there is only one European currency. Long live the euro.
By praising the euro I in no way mean to denigrate the dollar. Our Federal Reserve, led during the past two decades by Paul Volcker and Alan Greenspan, has resurrected the dollar from the laughing stock it was in the late 1970s to the best money the world has ever seen. It's now time for the European Central Bank to emulate Messrs. Volcker and Greenspan and do the euro proud. They still have a long way to go.
During the past seven years, the actual and synthetic euro has depreciated by over 33% against the dollar. Global businesses don't like holding assets that depreciate, and to the extent they can, they'll substitute out of the depreciating asset and into appreciating assets. This is what economists call the substitution of monies in demand. In more common parlance it's called "capital flight," "hot money," or a "run on the currency."
Whatever it's given name, businesses sell off a weak currency and buy a strong currency, which only makes the strong currency stronger and the weak currency weaker. This now is the number one problem the euro faces. The euro must become a strong currency on par with the dollar.
The number two problem is best exemplified by ECB Chairman Wim Duisenberg's total disregard for the falling euro and his naively complacent references to stable monetary aggregates and stable European price indices, all the while poo-poohing the falling euro. I'm still at a loss to know what he was doing in the 1970s when we all learned firsthand just how bitter the fruits of devaluation really are.
Europe has been able to get away with a falling currency for the past several years because of the enormous reservoir of demand brought on by currency consolidation. But this consolidation-induced demand won't last forever. It's about time Europe's central bankers straightened up and flew right. They need to jealously protect the value of the euro in all markets including the European goods market, the foreign exchange market and the bond market. A falling value of the euro in any of these markets is a sign of weakness and won't long be tolerated by global market makers. Strong economies don't have weak currencies...<hr></blockquote>
[ 01-07-2002: Message edited by: roger_ramjet ]</p>
