June 21st, 2012
07:43 PM GMT
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London (CNN) – Controversial and caddish to some, funny and forthright to others, former Italian Prime Minister Silvio Berlusconi is arguably the most high profile scalp claimed by the eurozone crisis so far.

Whether it was the ‘Bunga Bunga’ scandal or the unbalanced budgets that booted the former cruise-ship crooner out of office remains a point of discussion.

One thing you can’t argue with however is that eurozone membership has robbed Italy of its traditional tool for tackling boom and bust cycles: The currency devaluation.

Cue Berlusconi, who Italians often call "Il Cavaliere." “Leaving the euro is not blasphemy…” writes the 75-year old on his Facebook page.

"What would happen if Italy, Spain or Greece went back to their old currencies? I don't know, maybe there would be a loss of wealth but I don't understand why," Berlusconi later told Italian news agencies.

As one of Italy’s richest people, Berlusconi would have a lot at stake should his country head for the exit door but as the renowned economist Nouriel Roubini puts it: A sizeable chunk of Italy's industrial community happen to agree with him.

“Berlusconi outburst confirms what I wrote in my last paper,” tweets Roubini, the New York University Stern Professor and Chairman of Roubini Global Economics, a research firm.

“Powerful business/political lobbies in Italy (are in) favor of a Euro exit,” the tweet continued.

Euro crisis in-depth

Roubini points out that three of Italy’s political parties are now anti-euro.

Berlusconi may be known for his flippant outbursts but behind his court-jester comments lie a painful truth: with their endless tinkering proving ineffectual, the eurozone may be leaving itself with little option but to slash the value of the common currency - or else face outright defections from peripheral members.

Although close to a two-year low already many economists contend that the euro’s current exchange rate is harming the bloc’s weaker members and straining the political goodwill that underpins the money itself.

You see, the euro can’t be everything to everyone and although it is supposed to be Europe’s "common" currency not all of the 17 member states share the benefits it is supposed to bring.

Stephen Pope, managing director of Spotlight Ideas, is among a growing number of analysts calling for a considered devaluation of the euro.

"The reality of the polarized eurozone economy is now at such a state that the FX rate of the euro suits Germany but does not suit many others,” he says.

Germany: Is it really the villain?

“As it stands, the eurozone is in essence a convoy and it can only move at the speed of the slowest ships.

“To remedy that, either a decision is taken to effectively revalue the euro in a course of action by the European Central Bank or we speed up the convoy by sinking, or more kindly, casting off the slow speed ships.’’

In the 50 years before eurozone accession some European countries had developed a habit of adjusting their money to fix economic imbalances.

One of the most prominent devaluers was the Italian Republic where the ongoing depreciation of the currency made most Italians "Lira millionaires."

It’s true that repeated devaluations may have spurred inflation in the short term but they also made the country’s goods more competitive on the global scale, creating jobs and prosperity.

And the absence of their normal safety valve seems to have some of Italy's political stalwarts baffled.

“The eurozone sovereign debt crisis has already turned into a currency crisis,’’ says Nicholas Spiro, head of Sovereign Strategy, a London-based consultancy which assesses countries’ credit risk. “The future of the euro itself hinges on what happens in Spain and Italy.”

Nations like Italy were known for slicing maybe 7% or 8% off their exchange rates a year but credit strategists like Cairn Capital’s Graham Neilson say a concerted action to weaken the euro would have to be in the double digits - “25,30 maybe even 40%” - before it made a difference.

That may be the theory but orchestrating such action would be tricky, largely because talk of a weaker euro is still taboo in Brussels.

What's more the ECB kept interest rates unchanged at its last meeting and some think tanks don't reckon it will cut the cost of borrowing money until the second half of the year.

Greek voices: The human cost of crisis

“I find it hard to believe the ECB or the Germans would ever actually sanction a revaluation of the euro against the key currency peers,” says Pope.

“It would be an admission that ‘Project Euro’ had failed.”

The irony is though: If they don’t weaken the euro eventually, EU leaders may not have a common currency left to defend.



soundoff (57 Responses)
  1. Bushdiver

    I was always in the opinion that the Eoro was over valued to begin with.

    June 21, 2012 at 8:44 pm |
  2. Levend

    Countries that complain they got no benefit from the Euro – Well no one would give them credit at these levels if they were no part of the Euro. They spent when the times were good and now have to pay it back. Like getting a loan and complaining when the bank wants repayments.

    June 21, 2012 at 8:59 pm |
  3. Sra. Julia

    Please let me know as soon as the Euro is devalued enough to make a difference maybe then I can afford a trip to europe.

    June 21, 2012 at 9:17 pm |
  4. Rayan

    a 40% decrease in the value of the Euro would be great news for me... I'm planning to spend a couple years in Europe soon but I earn my money in other currencies.

    June 21, 2012 at 9:23 pm |
  5. OXIDE

    Indeed, Crysis was made by Europeans...the Germans from Crytek:P

    June 21, 2012 at 9:41 pm |
  6. Roelof

    Maybe a neuro and a zeuro would solve the problem. That way the markets can respond to the idiotic way South Europe is handling finances and the cultural financial way the North does. South needs a weak currency and not the spending power of the North, while the North keeps hammering on that the South needs to make reforms.

    June 21, 2012 at 10:10 pm |
  7. David

    The main problem facing the Eurozone is the extreme out of proportion sales tax rates (VAT) for example in France and most of Europe it is a crippling 19 or 20 percent or higher...compare the highest state sales tax in the US is I believe California with around 5 or 6 percent...this stifles the economies in Europe not allowing anyone to buy anything....that is the number ONE problem

    June 21, 2012 at 10:32 pm |
  8. Karoline

    Very good information, thanks a lo for sharing with us.
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    June 21, 2012 at 10:40 pm |
  9. darketernal

    As economist discover that its not just a "euro' crisis, but a 'world bankrupt' aka economic world crisis, a world recession will follow, the solution? A new monetary system in which those greedy bankers cannot play pyramid games anymore that devaluate our world currencies.

    June 21, 2012 at 10:51 pm |
  10. Lee

    Ever since the introduction of Euro more than a decade ago, the prices all over Europe jumped over any common sense boundaries. What it used to cost less than one Euro, it now costs up to ten times more than before the introduction of it. I long for the good times when Europe was a true destination for all my vacations -it still is but with a much higher cost- and I always tend to compare prices in USA and Europe, before the Euro. USA is probably twice or less more expensive than it used to be while Europe has gone over about ten times!!! Euro is definitely OVER PRICED and this is highly detrimental to Europeans and non Europeans as well. Something needs to be done and I am sure something WILL happen soon to correct this problem.

    June 21, 2012 at 11:40 pm |
  11. ahoy

    I many not have agreed with Mr. Berlusconi in the past, but his above statements make perfect sense.
    The Euro is overvalued and needs to either be devalued or face a certain death.
    The irony is that this common currency that was meant to united Europe has caused so many problems for the eurozone countries, especially the south.

    June 21, 2012 at 11:55 pm |
  12. Bushdiver

    @Lee..........Which EU country do you live in? I agree that since the arrival of the Euro prices have doubled, but ten times as much........don't think so. If you are comparing the costs between the US and Europe since the Euro you are also wrong, still not close to ten times as much. Where do you get your information from?

    June 22, 2012 at 12:15 am |
  13. Gemma Villani

    Instead of blaming 'euro' and Europeans, we should blame greeding and corrupt bankers, and remember, this crisis began with N.American banks, six years ago.

    June 22, 2012 at 12:16 am |
  14. Rex O Slate

    Ten years ago it cost 90 American cents to buy an Euro. Today it cost $1.2545 to purchase the same Euro. If simply the Euro returned to its more reasonable value of exchange of ten years ago, its value would be reduced to within the level suggested in the article by Cairn Capital’s Graham Neilson. A devaluation of 28.3 percent. Those who have suggested that Brussels has been artificially trying to bolster the value of the Euro may be correct. Possible economic pride before the fall ...

    June 22, 2012 at 12:21 am |
  15. Kishor

    Weaker Euro is the final answer. A weaker Euro will increase tourism. Weaker Euro will balance imports and exports. A weaker Euro will make living in Euro zone affordable for its Citizens and stimulate economic activities all over Euro zone.

    June 22, 2012 at 12:36 am |
  16. Intrepid

    Exactly Kishor.

    June 22, 2012 at 12:41 am |
  17. Intrepid

    When the Federal Reserve in America continues to dump USD's, the Euro will not be reduced in any significance. Big business in the states is protecting the export products that reach Euro markets while in bed with Fed officials. The Truth.

    June 22, 2012 at 12:43 am |
  18. robert_s

    I fail to see how a weaker Euro or a return to a national currency would make countries like Greece any more creditworthy. Why would anyone borrow them money at a lower intereset rate, if the interest they paid back was in a weaker currency? Wouldn't that rather cause the interest rates to go up even higher?

    June 22, 2012 at 1:00 am |
  19. Gemma Villani

    American Government has been devaluating the dollar, mostly the last three years, to face its home bank crisis. Compare dollar to euro and to England pound: it is not the euro that is overvaluated, it is the dollar that is undervaluated. Drastic changes in european currency now, would create serious solvency problems to many countries of the Eurozone.

    June 22, 2012 at 1:11 am |
  20. Ken Young

    Yes. You may have a slow death instead of a sudden death.
    Enjoy it while you can, son.

    June 22, 2012 at 1:51 am |
  21. ALLAMERICAN

    Euro is gradually going to fall apart, eventually will take germany and france withit.

    June 22, 2012 at 2:03 am |
  22. Digby Geen

    Those idiot central bankers and IMF etc are leading money to each other that they don't have!
    Eh here in New Zealand we are going to lend the IMF 1 billion dollars to bolster the IMF rescue funds.
    But our government does not have 1 billion dollars, we owe 48 billion.
    So we are going to borrow the one billion from somewhere to lend it to the IMF.
    Madness

    June 22, 2012 at 2:36 am |
  23. Mac

    The euro has been over priced for way too many years. The idea that a auto worker in Germany gets a mandatory 6 weeks paid vacation and $67.14 per hour in salary in benefits; the average in the U.S. made $33.77 and lucky to get 2 weeks!

    June 22, 2012 at 3:01 am |
  24. Nico1973

    I am an American citizen who loved to travel to Europe all the time. I stopped because the exchange from Dollars to Euro was a joke. The 2 months that i used to take-a year- for vacation was reduced to 2 weeks if i was lucky. If the Dollar and the Euro was equal, then i would start going back. Unfortunately that wont be happening anytime soon. So now i go to Turkey. I can live there like a king and still enjoy the beautiful Medittereanean sea as if i was in the south of france or Spain, Greece.
    I am not the only one who does what i do. Out of the 20 people i know who used to travel to Europe every year, not 1 person has stepped foot on European lands since 2005.
    Do you know what it feels like when you exchange $1,000.00 US Dollars into Euro's and they hand you 588.00 Euros? It stings big time.
    If Europe was to keep things the way they are, then i dont see any reason for me to ever go there again. When you hear about all the southern European countries in recession, it doesnt take a rocket scientist to figure out why. Lets take Greece for instance. they export nothing. All they do is import. All Greece is good for as a country is TOURISM! And from what i hear, tourism is down 20-30%. That why hotels and restaurants and taxis are all going broke. WAKE UP EUROPE, YOU NEED US AMERICANS TO COME THERE AND SPEND.

    June 22, 2012 at 5:18 am |
  25. AmericanInGermany

    A devalued Euro would just transfer the crises from southern Europe to Northern Europe. Germany needs a strong, stable Euro to be able to purchase raw materials for industrial production. It would also wipe out the savings of most ordinary Germans, as they typically have most of their savings in bank accounts, not real estate or stocks. Public support for the Euro in Germany is tepid, trending towards negative.

    Contrary to what other posters think, workers in Germany do not make a lot of money. Germany forced a two-to-one exchange rate on their people when the Euro was adopted, even though the purchasing power of the Euro is about the same as the old German Mark. The German people effectively took a 50% hair cut and a 50% wage reduction. On the other hand, workers in Southern Europe got sweet heart exchange rates when their Drachma, Lira, etc. were converted into Euros. This was done all in the name of "convergence".

    June 22, 2012 at 7:22 am |
  26. Req Uired

    They could have just asked Sweden and Denmark why they chose to keep their own currencies despite being EU members. These countries already created a common currency together with Norway in the 1870s. They named the new currency "krona". It lasted a few decades. After that, each of these countries have had their own "krona".

    June 22, 2012 at 7:26 am |
  27. Pat

    The euro isn't the problem. The problem is incompetent, corrupt & short-sighted politicians indebting their countries just to get re-elected, & greedy bankers & speculators. Blame them, not the euro or the EU.

    June 22, 2012 at 10:25 am |
  28. Lee

    The idea is not that you get 588 euros for 1000 bucks; the idea is what you could do before the euro with a buck and what you can do now with the same buck. One beer would cost you up to four bucks in a chic sea side restaurant, while now is might be up to twelve euros for the same darn beer. One kilo of cherries -saw it yesterday- might cost you a whopping 30 Euros. Go figure! The true imbalance between the dollar and euro comes when you compare what is was and what it actually is...
    Paying 20 euros for a 200km highway strip can get you dry in no time while cruising on the European highways.

    June 22, 2012 at 10:45 am |
  29. Alan Page

    This crisis is pushing Europe to become a Federation. To reach this point many economic and political regional groups will have to relinquish power and that is unacceptable. This is way this "better leave the Euro" rumour is taking place.

    June 22, 2012 at 3:08 pm |
  30. Alan Page

    This crisis is pushing Europe to become a Federation. To reach this point many economic and political regional groups will have to relinquish power and that is unacceptable. This is why this "better leave the Euro" rumour is taking place.

    June 22, 2012 at 3:09 pm |
  31. UpsideDown

    This truly is an upside down world.

    The "villian" in the whole piece is Germany. The reasons?
    1. Germans are advocating financial restraint (When did that become a bad thing todo?)
    2. Germans have saved money over the years (Again ....)
    3. They are refusing to pay for the free lunches that the PIGS countries are clamouring for

    Hmmm...why is that so reminiscient of something else??

    June 22, 2012 at 4:30 pm |
  32. Dan M.

    'Yeah! Damn Euro... without it I could have devalued Italian currency, screwing over ordinary Italians who save up with it, while transferring that wealth into my and my friends' non-currency investment assets.'

    June 22, 2012 at 7:44 pm |
  33. longtooth

    My wife's cousins have visited twice from Italy in the last three years. They left both times with suitcases stuffed with their purchases. They were like kids in a candy store. They say "We're the Americans now".

    June 22, 2012 at 8:59 pm |
  34. longtooth

    Berlusconi has a pretty good mortician, but he still looks dead.

    June 22, 2012 at 9:49 pm |
  35. Spock_rhp

    while a 30% weaker euro would do Italy, Spain, and Greece [plus Portugal and Ireland] a world of good - it'll only really be effective if this brings back the dmark - so it can stay at the present rate of exchange and thus rebalance the intra-Europe terms of trade.

    Probably Finland, Estonia, the Netherlands, and maybe one or two others should stick with Germany on this.

    June 22, 2012 at 11:13 pm |
  36. Bob

    Dear America,

    Why do you continue to write this crap? Why don't you focus on cleaning up your own mess instead of meddling in everyone else's. Last time I looked, the Euro is still well above the value of the US dollar – nuff said

    June 23, 2012 at 4:11 pm |
  37. Really...

    Devaluation is only one part of the equation. If they devalue as a solution to the debt load AND re-adjust spending levels downward to sustainable levels; then the Euro can be saved. That will though result in a massive decrease in the standard of living of Europeans. If they devalue in the hopes of continuing to overspend, they're only making the situation worse down the road.

    June 23, 2012 at 4:23 pm |
  38. Roelof

    How much does that Nina dos Santos earn? She could be Portuguese or Spanish. First of all South EU needs a S-euro. Second all national born citizens their autonomy on savings should be used to bail countries and their banks out when necessary. For instance the Greek have 600 billion euro on Swiss bank accounts.They never payed any tax. Now the country can't pay their bills, the rest of Europe is hold responsible. This should end, when their rich citizens leave the country – as you can also see in France after the French elected Hollande – they still should be held responsible for the financial situation in their country and not all citizens of other countries.

    June 23, 2012 at 7:21 pm |
  39. Trond Johannessen

    Taking Berlusconi seriously, your credibility is shot...

    June 23, 2012 at 8:11 pm |
  40. Peter

    I am German and I can tell you that it is not correct claiming that the Euro came with a 50% haircut for German workers and that things are 10 times as expensive as they used to be when the Euro was introduced. Yes, things have become more expensive than they were, but maybe 20 % or so – not 1000%. In fact the inflation rate has been below what it used to be when the D-Mark had still been around.

    June 23, 2012 at 9:54 pm |
  41. eamon

    Quoting Berlusconi is a sign of how low we have sunk. Come on CNN,you are way above this.

    June 23, 2012 at 10:19 pm |
  42. eamon

    Nina dos Santos: " Controversial and caddish to some, funny and forthright to others" Does Nina dos Santos do "bunga bunga"? Disgraceful would describe her report. Where are you going CNN?

    June 23, 2012 at 10:23 pm |
  43. luigi

    why still listening to berlusconi? now he is a diseappering body in the Italian political panorama. His party is actually at about 15%, probably less. Please follow renzi or grillo are more important, one is a new leader, the other is a new leader at 22% and growing

    June 23, 2012 at 10:59 pm |
  44. matthew gibb

    This makes perfect sense.It seems like in western countries we are all paying too much for everything.Why not simply stop gouging customers for everything from housing to food?Our money would go further and we wouldn't need to waste money on all of these worthless bailouts.

    June 24, 2012 at 12:07 am |
  45. Harold

    I actually need the euro to get as strong as it can get cause half of my sales are to Europeans and a weaker euro will just make their trip to USA more expensive and they will spend less or they will simply dont travel as much and wont make $$$ :(

    June 24, 2012 at 2:39 am |
  46. T. J.

    Hello my name is T.J. I lived in U.A.E, a country whose currency is tied to U.S. dollar, for all my life – Now moved to Germany at the age of 35 with my family. I hear the people talk about the TAX that make prices unbearable however I am not so sure I felt that. Coming from a Country that praises itself as a TAX free heaven, I assumed the prices of goods in Germany will crush me with no mercy. But luckily I have found that more or less it’s the same where ever you go – even better in Germany where you can enjoy living with some 2000 Euro in your pocket every month ( this amount will hardly get you by for 2 weeks in UAE) it’s confusing! At least for me it is.

    June 24, 2012 at 6:01 am |
  47. Oldeye

    Euro is not the problem. It is the growing outflow of wealth from consuming nations to producing nations.
    The Chinese manufacture the cheapest (in terms of consumptive prices) and the petroleum imports take
    huge bites out of euro and dollar based nations. Social programs, spending/savings habits, etc. are just
    a smoke screen. Bottom line? Consume less, produce more. Ideally, strike a balance in foreign trade.
    These are but ABC's of economic principles that every nation should understand. Traditionally, the Euro
    and Dollar nations are the consumers(hence developed nations) but that wealth is tipping towards the
    exporters as the value and volume of their exports cross over the tipping line. Oil consumption in USA
    and Europe have tipped over the line of no return and I don't see any relief in sight. Not in this decade.
    All this monetary crises that EURO and Dollar nations face will not go away. It's here to stay. Sorry.

    June 24, 2012 at 10:54 am |
  48. Lars Hansen

    The core problem isnt the strength or weakness of the EURO. The problem is DEBT, both sovereign and private. Sure the answer is print, print, print and viola your have 1923 Germany where it cost a billion Reichmarks to buy a loaf of bread. Such clap trap..............to see the question, whilst a weaker Euro save the EU? BS

    June 25, 2012 at 7:40 pm |
  49. Lars Hansen

    Lots of opinions, very little facts.

    June 25, 2012 at 9:56 pm |
  50. Fabrizio

    If Italy returned to the lira it would be a disaster for the country. It could give some help to the manufacturing industry in the short term but in longer terms they would be offset by high inflation xyas Italy imports all the raw commodities, so we would need to keep devaluating the currency. In the past we could afford to play that game because all the national debt was held by Italian banks mostly public. Now it is no longer the case, and few international investors would buy bond in a currency that keep devaluating, and the interest on the 2TN euro debt would be impossible to be paid. Berlusconi is out of his mind at his final show.

    June 28, 2012 at 1:12 am |
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  53. Paolo Morra

    Perhaps, it would be interesting to see the capabilities of the average Italian person going abroad nowadays as part of this argument. Before the Euro turned up, most Italian people travelling to the UK, Germany or the USA found it hard to stay clean because of how low the Lire was on the IMF. Nowadays a lot of Italian people can travel abroad with less worries, the Euro has more stability, its value is higher than the Lire, and it also does not get thrown around as much on the IMF.
    If the lack of unity in the banking sector is causing so many problems, then it may be covenient to merge a few banks so that the banking sector can be more united. Furthermore, I think that if the Euro gets lowered in value it will probably not go down much because it has helped create more communication and easier policies across borders.
    bye for now,
    pmorra73

    July 24, 2012 at 11:15 am |
  54. Sal

    a There can't be any Economic Union if there's not a Political Union first !

    July 30, 2012 at 6:21 am |
  55. Paolo Morra

    I still think that less banks in the eurozone would allow for less speculation on borrowing. A few mergers in the banks and the euro as a currency may not get thrown around much on the IMF. That is my opinion...
    bye, pmorra73

    August 7, 2012 at 11:03 am |
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