I disagree and offer you the South Korean devaluation of 1997 as a counterexample. Seems to have worked out quite nicely for them, in the end, what with GDP per capita more than doubling in the following 10 years.
South Korea had a productive industrial base that suffered from its link to the dollar during a time when the dollar was depreciating...increasing the cost of Korean Exports. South Korea was not insolvent but it was suffering capital flight. Greece is different, there is no infrastructure to revive with export production or domestic growth policies. In any case Greece cannot devalue. Its monetary function has been outsourced to Brussels. They would have to withdraw from the EMU and it would lose access to EU and world credit markets thereafter, at any price. Change your focus on Korea and the Asian monetary crises and look instead at the track record of IMF bailouts in response to that crises...no courntry in Asia will now do business with the IMF, which if you look at their track record has created much more destruction with thier devaluation and tax formulas than good.
Well, being devil's advocate again here, the IMF would say that the only reason the EM world finds itself in such a strong, competitive and relatively unleveraged position is the IMF involvement. At any rate, I don't necessarily disagree with you. I just like to be clear on the various different effects that we're seeing.
Did you mean ...appreciating...instead? http://research.stlouisfed.org/fred2/series/DEXKOUS?cid=94 We can see from the graph that after the decoupling the Korean currency rapidly depreciated wrt to USD to benefit exports.
IMF is ramping up its resources. Looks like the SDRs are gaining prominence - maybe to function eventually as a supra-sovereign SIV for bad sovereign debt? Greece will not be allowed to default due to the systemic issues - the sovereign bond market, the Northern European banks, and a host of other unintended consequences. In my view, Greece is like a suicide bomber. They have a ton of dynamite strapped onto themselves... they can get whatever they want. God forbid the government employee protesters understand this. The first to approach default wins? And in light of recent happenings at the IMF.... The Executive Board of the International Monetary Fund (IMF) today approved a ten-fold expansion of the Fundâs New Arrangements to Borrow (NAB) and the transformation of the Fundâs premier standing credit arrangement into a more flexible and effective tool of crisis management. The NAB will be increased by SDR 333.5 billion (about US$500 billion) to SDR 367.5 billion (about US$550 billion), representing a major increase in the resources available for the Fundâs lending to its members. Sources: http://www.imf.org/external/np/sec/pr/2010/pr10145.htm http://www.zerohedge.com/article/im...scue-facility-half-trillion-contribution-glob
Intradaybill, yes I meant to write 'appreciated' not 'depreciated;' I had deflation on my mind. Lets hope the Greek Unions don't figure out that Ireland, which apprears as troubled as Greece, will comply with the 'rescue' plan that requires all EMU members to contribute pro rata based on the size of their economy, by borrowing the $700M it is bound to contribute to the fund. Ireland will borrow $700M at 2.5% and then lend it to Greece at 5%...not a bad deal for an equally insolvent country! Make money and save the Northern Banks at the same time. Also don't let the Greek unions figure out that the whole EU plan essentially guarantees German export dominance within the EU Zone...there never has been any realistic chance for the Greeks to compete and the Germans were handed a protected market to exploit on its own currency terms.
That all depends on the future of the Euro. We're only in the second inning - we have a ways to go. But up to now, who consumed someone else's economic output? Didn't the PIIGS consume the economic output of the North? And the North is holding IOUs that may become meaningless in a few years? It's still too early to call the game.
I certainly don't think it's that simple, Ed... Firstly, didn't you define insolvency as the inability of the sovereign to roll its debt at a reasonably sustainable rate? If Ireland is able to fund itself at 2.5%, while Greece is struggling to get anything at 7%, how can you refer to them as "equally insolvent"? Maybe if Ireland does the balance sheet trade, the Greek unions finally figure out that it pays to be somewhat fiscally responsible like the Irish. Moreover, if I were the Irish, I'd argue that the spread is fair compensation for the risk. As to your second point, I am not really sure I agree with the portrayal of the Greeks as these innocent victims. They, like the Icelanders, enjoyed the party, but are now refusing to pay for it, unlike the other people arnd them.
Agreed, Ireland is not inslovent. I shouldn't have implied it was. Didn't mean to imply that Greeks are not responsible for thier predicament. They used cheap debt obtained at German rates and used it to fund bloated payrolls and benefits that did not build an increase in productivity. This day of reconning is all of thier own making. However, they may not like the current remedy when they say that the benefit of thier auterity will really flow outside the nation. I would expect members of past administration that lied about financial condition to be prosecuted, as in Iceland, and I would not be surprised the public rejected the austerity deals to avoid default, just as they did in Iceland. This does not make the Greeks victims it just acknowledges thier self interest in the ongoing crises.
You think individual countries have the mechanisms and leverage to really decouple themselves from international trends simply trough their political system?