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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (48878)	3/29/2006 2:35:42 PM
From: regli	Read Replies (1) \| Respond to of 116555

I agree with your major points. Italy and in turn Greece and Portugal have significant challenges ahead and currency devaluation is by all means not the solution! Currency devaluation is too simplistic tool to address lack of competitiveness. In fact, the discipline the Euro is forcing on these States is actually their opportunity. As you say, devaluation will not make them competitive with China, it is only internal restructuring and fiscal discipline that will force countries to face the real world. Devaluation was useful while the competitive measure was Europe or the States. We are in a different ballgame now and those not facing up to it will only get burned faster. This can already be seen with the EU China shoe controversy. There is significant internal EU dissent on the issue as more expensive shoes damage consumers outside of the beneficiary areas. What struck me recently is that these controversies like the shoe and bra wars are actually self correcting and consistently pit consumers against producers and often different areas of the EU depending on where products are manufactured. These issues foster awareness of the inevitability of globalization and that by itself is the most important aspect to regain competitiveness. Currency devaluation is not a benign issue as it hits the local standard of living in today’s international market economy. Italians love to drive and oil will never be priced in Liras. Globalization has advanced dramatically since the introduction of the Euro. A walk into the past will not save anybody either in the U.S. or in Europe. In addition, the primary export market for Italy is the EU. I am sure that Italian producers wouldn’t like to face import duties from 2% to 14% on their shoes and other products in their largest market once they left it. They would likely lose more than they could ever gain through devaluation in exports losses. The global leveling is on and those in the developed world those who face it early will be the ones to suffer less.