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2010-05-21

Paul Krugman on euro union is wrong

Comments on Bronwen Maddox “Enmeshed in legal maze of the euro”, 21/05/2010, http://www.theaustralian.com.au/news/opinion/enmeshed-in-legal-maze-of-the-euro/story-e6frg6zo-1225869340719
It seems that there is an easy way to solve the problem associated with the euro monetary union and independent fiscal sovereign.

Any country in the eurozone does not have the freedom to devalue its currency to increase its international competitiveness.

However, it can use temporary trade policy to achieve what currency devaluation can achieve, that is, to temporarily tax on imports from the zone countries and subsidise its exports to those countries.

That is not quite completely equivalent to devaluation, but only relative to the zone members.

This practice is not in accordance with WTO rules. But monetary union is different too and has some characteristics of a "country".

As long as that temporary "trade policy" is internal to the eurozone and does not apply to other countries outside the eurozone, it should be regarded as acceptable.

Monetary union has its own advantages and limitations, as a result, some special public policies are also necessary.

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