It is outrageous that a depreciation of the euro is being used to kick-start the eurozone economy
The depreciation of the euro, which results from the growth gap and expectations of divergent monetary policy between the United States and the euro zone, is being very warmly welcomed in the euro zone because it will help to lift growth.
But it is outrageous that the euro zone is using an exchange-rate depreciation – and therefore external demand stimulus – to kick-start its activity, because the euro zone has a very large external surplus:
First, this surplus shows that it is the euro zone’s domestic demand and not external demand that needs to be stimulated;
Second, other countries (United States, United Kingdom, emerging countries, etc.) ought to protest: the currency of a country that has a very large external surplus normally ought to appreciate and not depreciate.
The right solution would therefore be to stimulate domestic demand in the euro zone. It is well known that the euro-zone countries that have external surpluses (Germany, Netherlands, Austria) do not wish to stimulate their domestic demand; so a way needs to be found to use these countries’ excess savings to finance additional public or private investment in the rest of the euro zone, instead of lending these excess savings to the rest of the world.
