The standard way to buffer the effects of austerity is to marry domestic cuts to devaluation of the currency. Devaluation renders exports more competitive, thus substituting external demand for the domestic demand that is being compressed.

One way is as part of America s strategy of competitive devaluation.

Devaluation is not an option because of the common currency.

But, since none of these countries has a national currency to devalue, they must substitute internal devaluation for external devaluation.

In 2003 the government of Hugo Chávez implemented currency controls after capital flight led to a devaluation of the currency.

Devaluation renders exports more competitive, thus substituting external demand for the domestic demand that is being compressed.

Unable to conclude a global trade deal, climate change agreement, growth pact, or changes in the financial regime, the world is likely to descend into a new protectionism of competitive devaluation, currency wars, trade restrictions, and capital controls.

Since the amount of foreign reserves available to defend a weak currency (a currency in low demand) is limited, a currency crisis or devaluation could be the end result.

By 2001, a combination of devaluation (exit from the currency straitjacket) and partial default was inevitable.

During the Asian financial crisis of 1997 1998, Chinese officials did not engage in competitive devaluation of the renminbi.

It is not just China that benefits from a competitive currency.

The importance of a competitive currency for economic growth is undeniable.

The standard way to buffer the effects of austerity is to marry domestic cuts to devaluation of the currency.

In a monetary union, there are only two ways to close a competitiveness gap between countries transfers from the more competitive to the less competitive, or internal devaluation, which means real wage cuts.

But, following a recent 64 devaluation of the currency, the clock appears to be running out on his prolonged misrule.

So the competitive devaluation war in which we find ourselves is a zero sum game one country s gain is some other country s loss.

Some of the ghosts of the 1930 s have returned, too in particular, the fear of unfair trade advantages caused by competitive devaluation.

First, its currency would naturally depreciate, making exports more competitive and imports more expensive.

The attempt to achieve them is bound to lead to competitive currency depreciation and protectionism.

Doing so requires Japanese policymakers to focus on more sustainable growth while averting a vicious cycle of competitive devaluation and protectionism with Japan s trade partners.

Indeed, without the single currency, many of these countries would have succumbed to a downward spiral of devaluation, default, and recourse to the IMF.

And, as more and more countries intervene to weaken their exchange rates in response to America s attempt at competitive devaluation through quantitative easing, the problem is becoming worse.

TOKYO The risk of global currency and trade wars is rising, with most economies now engaged in competitive devaluations.

Since the debt restructuring and currency devaluation, Argentina has had years of extraordinarily rapid GDP growth, with the annual rate averaging nearly 9 from 2003 to 2007.

Be it the spread of inflation or the impact of currency devaluation half a world away, global economic forces can have a direct impact on every person s livelihood.

The government, unable to print money to bail out the banks or increase export competitiveness through currency devaluation, is left with only two options default or deflation (austerity).

Anxiety over unconventional monetary policies and currency wars must not continue to dominate global policy discussions, especially given last month s pledge by G 20 leaders not to engage in competitive currency devaluations.

China s currency policy gives it a competitive advantage relative to other countries, allowing it to displace their exports to the US.

Maintaining a competitive currency requires a rise in domestic saving relative to investment, or a reduction in national expenditure relative to income.

The Value of China s Devaluation

Devaluation and debt restructuring worked.

WASHINGTON, DC Belarusian President Alexander Lukashenko is a master of political survival. But, following a recent 64 devaluation of the currency, the clock appears to be running out on his prolonged misrule.

In other circumstances, the US would benefit from the exchange rate weakening that follows from lower interest rates a kind of beggar thy neighbor competitive devaluation that would come at the expense of America s trading partners.

The need for massive fiscal adjustment without any offsetting currency devaluation will now drive Greece and perhaps others to default on their government debt, probably through some kind of IMF supported debt restructuring.

Given Italy s adverse competitiveness position, devaluation of the currency, were it possible, would not be a long term substitute for productivity boosting reforms, but it certainly would help in at least three ways.

But internal devaluation requires debt restructuring.

In the aftermath of the international financial crisis of 1997 1998, many emerging markets found themselves through currency depreciation, rapid productivity gains, or both highly competitive.

Italy needs to learn how to live with the euro and within the eurozone, which means adopting policies that ensure that productivity growth and innovation, not currency devaluation, are the main drivers of competitiveness.

Furthermore, the euro will contribute to the marginalization of middle aged workers by preventing national governments from using competitive devaluation to preserve declining industries. Likewise, European countries massive public debt is limiting policymakers ability to protect vulnerable sectors.

Ordinarily, a large surplus puts upward pressure on the country s currency making its exports less competitive and boosting demand for imported goods and services. But a country s authorities can prevent appreciation for a prolonged period of time by buying up foreign currency.

TOKYO The risk of global currency and trade wars is rising, with most economies now engaged in competitive devaluations. All are playing a game that some must lose.

With a less competitive currency, many analysts hope, China will export less and import more, making a positive contribution to the recovery of the US and other economies.

They are united in ruling out external devaluation.

For reform laggards like France, Italy, and Portugal, currency union with an increasingly competitive Germany is forcing an unwelcome choice between revving up their own reforms and permanent stagnation.

Europe s leaders must pursue a controlled segmentation of the eurozone, in which the most competitive countries Austria, Finland, Germany, and the Netherlands adopt a new currency, the northern euro.