Madam, – Anthony Coughlan regrets (April 14th) “we cannot restore our lost economic competitiveness by devaluing our currency”. I have a more substantive regret: that we were unwise enough to lose our competitiveness in the first place. No amount of devaluation would restore it if the recklessness and negligence that brought about the crisis continued. Since most of us contributed to the bubble and we all benefited from the low-tax policy associated with the inadequate regulation of the economy, it follows that the measures necessary to put things right must impact widely.
I acknowledge devaluation is an effective means of restoring competitiveness. It works because, in an open economy, people have to accept less for what they produce and pay more for what they buy. Thus living standards inevitably fall. To achieve an equal improvement in competitiveness, a devaluation would have to effect the same reduction in living standards as the cuts now being imposed. The fact that devaluation lowers standards by stealth creates the illusion that it is an easier solution.
I have to admire Mr Coughlan’s idea that, out of euro-zone solidarity, well-regulated hard-working Germans should be induced to go on a shopping spree to rescue the economies of the profligate “Club Med” countries and Ireland. - Yours, etc,