Although the European Central Bank treaty does not permit devaluation, there is a way for Greece, Italy, Portugal and perhaps others (known by the acronym PIGS) to devalue while remaining part of the euro. The northern countries can start a new currency union limited to those who adopt common, binding or enforceable fiscal arrangements like those that German Chancellor Angela Merkel and France’s President Nicolas Sarkozy discussed last month. The new currency could float against the euro, allowing the euro to devalue. Once devaluation restored competitive prices in the heavily indebted countries, they could be admitted to the new currency arrangement if, and only if, they made an enforceable commitment to the tighter fiscal arrangement. If all countries rejoined, the old system would restart with a more appropriate, binding fiscal policy rule.