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The Agenda

NRO’s domestic-policy blog, by Reihan Salam.

Kenneth Griffin and Anil Kashyap Call for Restoring the Mark



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Restoring the mark is one of the better ideas I’ve heard for improving the health and stability of the eurozone.

Although repeated currency devaluations are not the path to prosperity, a weaker euro would give a boost in competitiveness to all members of the monetary union, including France and the Netherlands, which is why they might very well choose to remain in it even if Germany were to gradually leave. A resurgence of manufacturing would also allow the vast unemployment rolls of Spain, Portugal, Greece and other countries to begin to decline. The tremendous loss of human capital and human dignity we are witnessing would ease.

Reintroducing the mark would not solve the debt burdens of southern European countries, but it would give them needed breathing room to restructure their economies, reform labor markets, collect more taxes and reassure investors. The ability of the southern European countries to service their sovereign debt would immediately improve, helping to end the slow-burning debt and banking crises that have engulfed the Continent since 2008.

German firms have profited from a weak euro, yet there has been a longer-term cost: the appreciation of the mark forced German firms to improve productivity and to move up the value chain; the weak euro, in contrast, has acted as a crutch, delaying the transition from manufacturing to knowledge-intensive services. Many Germans obviously see this as a feature and not a bug, but there is at least some reason to believe that Germany is poorer as a result. Moreover, the fact that Germany has remained roughly fixed on the value chain has putted additional pressure on manufacturers in southern Europe, would would have had an opportunity to fill the gap as Germany climbed the value chain. (Interestingly, Germany has experienced significant gains in hourly productivity, yet per capita productivity has declined as hours have decreased.) 



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