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Colm McCarthy: Economic growth is being held back by headwind of eurozone constraints

The different countries making up the eurozone have divergent interests and will not be equally well served by a common policy. This problem has been present from the beginning but has become acute over the last few years.

Countries with heavy debts and high unemployment often opt, when free to do so, for a policy mix of temporarily higher inflation and a softer currency. Inflation helps debtors at the expense of creditors since it erodes the real debt burden. A softer exchange rate gives a short-term boost to competitiveness. Stuck in a currency union committed to low inflation and a strong exchange rate is not the best place to be for struggling countries.


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