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By Philippe Legrain 3 COMMENTS

“Fears grow about weaker euro” is the headline in today’s FT.

But what’s to fear?

For a start, the euro is hardly “weak”. It is back to where it was 18 months ago and is still much stronger than it was, for instance, in 2002, when it was worth less than 90 US cents.

But more importantly, a weaker currency is just what the eurozone needs.

It will make exports more competitive, and hence boost growth.

It will stave off exaggerated fears about deflation. (Spanish prices fell by 0.1% last month).

And it will boost its peripheral economies that are introducing savage austerity measures to pacify the markets – Greece, Portugal, Ireland and Spain – in particular.

Above all, what this fuss shows is that panicky investors are determined to see everything in a negative light.

They worry when the euro goes up, and they worry when it goes down.

While the first fear is justified, the second is not.

Posted 15 May 2010 in Blog
  1. Why indeed? There are three ways of dealing with deficit problems in the Eurozone: Default, austerity, and devaluation. Somehow devaluation seems taboo, despite being clearly superior to the alternatives. It’s hard to see whose interests, other than very narrow and short sighted investor’s interests, a strong Euro policy might serve.

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