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Dear Rien Huizer,

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You wrote: " ... flaoting currencies do not devalue, they adjust to market forces. What the author might mean is that the ECB could conduct interventions to change the market rate"

That is a fair description of the normal management of a floating currency. However, what the author is talking about is not the normal management of a floating currency. He is talking about the deliberate devaluation of the euro to avoid the insolvency of those countries in the euro zone that are badly suffering from the financial crisis. It would require a significant exchange rate reduction for it to achieve its purpose.

That would be an exceptional step for the ECB to take and quite different from its normal management procedures. Such a decision could only be taken by the Governing Council of the ECB consisting of the 6 members of its Executive Board plus the governors of the 17 central banks within the euro zone. It would not be a technical decision. It would be a political decision.

Whether currency exchange rates are fixed or floating, governments always find ways and means of devaluing them if they want to. The techniques may vary but the results are the same.

Call it what you will. Devaluation is just a common term that most people understand.

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Dear stevenlmeyer,

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I couldn't agree with you more about the Americans and the Chinese. I remember reading somewhere that a high Chinese official said recently when commenting on the Americans printing so many bank notes to keep the value of the dollar low: "the Americans spend tomorrow's money today and we spend today's money tomorrow".

I think that was probably a bit of an exaggeration. The Chinese keep most of their money under the pillow or in the bank rather than spending it.

You wrote: "The Americans should have regulated their banks better and, failing that, let the affected banks fail".

I agree with the first half of your sentence but don't forget Lehman Brothers that nearly brought the whole banking world down when the Fed let it go into bankruptcy. That was such a scare they did everything they could to prop up the AIG which was also in dire straits and could have produced the same domino effect.

The world of finance is so globally interconnected now you have to be careful. When one catches cold they all start sneezing.

As for the US healthcare system, I am afraid it's a bit of a mystery to me. I do not know enough about it to be able to comment. All I can say is I hope I never have an accident or fall ill while I'm over there. I have heard some horrific stories of some of the people I know, one of whom a young, healthy American work colleague of mine in New York who had a very minor operation and died as a result of an anaesthetics error on the operating table.

The whole system seems totally unmanageable, unaffordable and the problems inextricable. Too complicated for me.

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@ Banjo Paterson,

I guess we disagree on a matter of semantics. Forcing the market rate lower of a floating currency has the same first-order effect as devaluing a fixed rate one. Hopwever the dynamics around fixed and floating rate currencies are completely different. Unless the EU (the sponsor of the EUR, not only the EUR zone members) would create mechanisms to establish and especially enforce a fixed exchange rate (which would require capital controls), constant intervention would be required to manage the rate at the levels established by the intervention. Since the markets would have to explore the ECB's credibility in setting such a rate, there would be numerous challenges and maybe the thinkg would fail, in similar ways as plans to stabilize EUR sovereign interest rates have so far failed: there is insufficient belief that ALL EUR current zone gvts will be able to raise the revenue from their local economies necessary to service ALL of the EUR area's sovereign debt denominated in EUR. By itself that should not be a problem, but the institutional arrangements around the ECB were schizophrenic from the start: it is the lender of last resort of banks in the EUR zone and as such it would be highly impractical if banks carrying local sovereign debt could not use that debt for discount operations (whcih leads to a build-up of excess debt in the ECB) and, as was envisaged in the Stability Pact, fiscally misbehaving members should be expected to default. It is the latter feature that has been used too little and too late. And now the collateral damage (pardon the pun) would be too great.

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Dear Rien Huizer,

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I agree it's by no means a simple matter to sort out. If it were it would have already been solved by now. I have no doubt at all that the ECB has all the resources and expertise necessary to devalue the euro and keep it devalued for as long as it considered it was necessary, if it wanted to.

It seems pretty obvious though, that it has no intention of doing that in the foreseeable future. It increased its interest rate a quarter of a point just two months ago. It certainly would not have done that if it were considering devaluation.

The French banks have just worked out a deal that has been rating agent tested for non-default qualification, involving a roll-over of Greek bonds to a 30 year maturity. I understand the German banks are also willing to support the deal. In addition the banks are reportedly willing to put some of their own money in the pot. This comes on the back of the recent vote by the Greek parliament to implement the new austerity measures imposed by the ECB and the IMF.

All that is fine but none of those measures are going to get the people back to work instead of rioting on the streets, nor is it going to stop corruption, bring in the € 20 billion per year of unpaid taxes, stop the whopper sale of national assets, reduce the massive unemployment, or kick-start the economy back to life.

The current strong euro policy of the ECB is fine from a Germany point of view but the Mediterranean countries, Ireland and Belgium are all hurting badly and could do with the sort of economic boost they could get from a devalued euro.

Of course it is their own fault. Of course they should have built their house in bricks and not in straw or sticks. But, as in the fairy tale, the third little pig sheltered the two other little pigs from the big bad wolf. Today's shelter could be a devaluation.

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