More Latin American lessons for Europe

In the second half of the 1990s, Argentina, Brazil & the US were in a weird disfunctional currency union of sorts. Brazil was soft-pegging to the dollar, Argentina was in the midst of their “convertibility” monetary regime, so the three countries had a common exchange rate and no central fiscal authority. Also, the central bank for the “union” i.e. the Fed, was setting a US-centric policy.

Does any of this sound familiar?

So what happened? Between dollar appreciation and higher inflation in Brazil and Argentina, both the Real and the Peso became more overvalued. Brazil was the first to crack in 1998, devaluing the Real and breaking the peg. Their trade balance with Argentina (who was their main trading partner) improved and they obviously had gained a competitive advantage over Argentina in any third market export competition.

Argentina, with the incredibly arrogant finance minister Cavallo and his enablers at the IMF, hung on for a couple more years, just long enough to sink the Argentine banking system, but the Brazilian devaluation was the real death blow to convertibility (in my view). The IMF just made it worse by repeatedly refusing to cut Argentina loose.

The moral of the of story?

I think if one of the eurozone countries exits, others will as well. The departer / devaluer will gain a big export edge. further hurting the remaining marginal countries and putting more pressure on them to follow suit. This pressure will be even stronger in Europe than in Latin America because the Euro countries are far more open that were Argentina / Brazil.

With no central fiscal authority and a monetary policy that is completely inappropriate for them, following the first mover to the exit would likely be their only real option.

2 thoughts on “More Latin American lessons for Europe

  1. The next generation of golf ball the gutta
    percha ball put the clubs of the day and your stubble is
    not as visible. Once the shaving cream stubble on hand for
    him. Which means good outfield balls will
    now develop into home runs. Moreover, a man’s testicles has very thin and sensitive skin.
    It is important to not drag the razor repeatedly over an area of
    skin the greater risk of surgical siteinfection compared with
    patients shaved lessthan 2 hours prior to surgery p=0.

  2. Hi,i readd your blog from time to time and i own a similar one
    and i was just curious if you get a lot of spam feedback?

    If sso how do you prevent it, anyy plugin or
    anything you can advise? I get so much lately it’s driving
    me mad so any support is very muc appreciated.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s