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Belke, Ansgar and Volz, Ulrich (2015) 'The Strong Euro: Challenges for the European Central Bank and Implications for the Global Economy.' AEI Insights, 1 (1). pp. 53-68.

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The exchange rate can have important effects on inflation, export performance and growth. Against the backdrop of a strong euro and calls for the European Central Bank (ECB) to lower the common currency’s external value, this article discusses the challenges for the ECB and the Eurozone stemming from a strong euro and weights the arguments for and against currency intervention by the ECB to weaken the euro. We argue that a devaluation strategy is no panacea to the Eurozone's problems. Macroeconomic imbalances within the Eurozone need to be resolved primarily by structural adjustments. However, a modest euro devaluation and higher inflation in the core countries will facilitate adjustments in the periphery countries. Given that a resolution of the European debt problems and a sustained recovery of the Eurozone is also in the interest of the rest of the world, a modest euro devaluation should not trigger a competitive devaluation spiral.

Item Type: Journal Article
SOAS Departments & Centres: Departments and Subunits > Department of Economics
Legacy Departments > Faculty of Law and Social Sciences > Department of Economics
ISSN: 2289800X
Date Deposited: 31 Mar 2015 10:52

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