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As the Belgian bank giant Fortis collapses, citizens of that country appreciate the bonheur of belonging to the eurozone. Had it not been for the euro, Belgium would have devalued and sharply increased interest rates — just as Iceland was forced to do. The banking and financial crisis is quickly changing perceptions. Across Europe, there is a bit of a scramble to join the euro. Politicians from Scandinavia to Eastern Europe, fearful of the abyss, are re-evaluating the wisdom of going it alone (Denmark, Sweden, Norway) or postponing structural reform (Hungary, Poland). Brazil and Mexico have secured a swap line from the Federal Reserve Bank. When it comes to liquidity conditions, size seems to matter after all.

‘Had it not been for the euro, Belgium would have devalued and sharply increased interest rates — just as Iceland was forced to do.’

Yes, but only because they don’t understand what other options are, like sustaining output and growth via fiscal measures, setting interest rates where they want them for further public purpose (including the option of a zero rate policy), and letting private corps with external currency debt problems default on them and convert them to equity in bankruptcy while sustaining the ongoing business as desired for further public purpose (keeping the banks open while they are legally getting reorganized) etc etc.

It’s the blind leading the blind.


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