In Praise of the Beleaguered Euro: Op-Ed by Prof. Amar Bhide

The Wall Street Journal

Amar Bhidé is Thomas Schmidheiny Professor at The Fletcher School of Law and Diplomacy, Tufts University.

Sunday's trouncing of Greece's ruling coalition in parliamentary elections is fanning fears that it will leave the euro zone and try to devalue its way out of crisis.

Some believe this to be the right course of action. They argue that Greece and other countries on the continent's southern periphery should never have joined the euro. Tough global competition depresses prices, while rigid labor markets prop up wages. A lower exchange rate would ease the squeeze, but the competitiveness of exporters in Germany and other northern countries keeps the euro high.

The argument for fleeing the euro to devalue is misguided. Greece and the other peripheral economies lost little in giving up their national currencies. Nor did their membership make the euro zone too sprawling to succeed. If anything, its size and heterogeneity are a plus.

Currency devaluations supposedly give countries with chronically uncompetitive businesses and rigid labor markets a way out. Devaluation is tantamount to a price cut that allows local companies to maintain or even expand their share of international markets. Devaluation, the argument goes, also raises the price of imports, giving local businesses an edge in their home market.

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