CFS asked the question “Does math support euro survival?” on December 5, 2011.
Based on a quantitative approach to evaluate the relative competitiveness of nations, our view was “yes” – the euro can and should survive.
However, Greece and Portugal remain serious outliers. Their implicit currencies require serious economic adjustment or issuance of a new drachma and escudo.
Euro Components: CFS Synthetic Currency Valuations
CFS synthetically developed real effective currencies for eleven major nations within the euro. Real exchange rate movements and currency valuations for individual euro nations help answer three fundamental questions.
– Did member nation exchange rates enter the euro at an appropriate level?
– Since entry into the euro, did the unified rate hinder or help international competitiveness and growth?
– To what extent are euro members threatened by relatively overvalued currencies – or near levels consistent with currency crises in emerging market economies?
For the full report: http://www.centerforfinancialstability.org/research/LG_Euro_120511.pdf