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Spain: Return to the peseta or stay with the euro?

September 29, 2012

 

 

There are valid reasons why European countries going through a severe financial crisis are ambivalent about staying in the Eurozone. Let’s take the export of Spanish olive oil as an example. Spanish olive oil is one of the best in the world. With high unemployment in the Spanish olive industry, if Spain was still using the peseta, it could devalue the currency and double direct exports of reduced-price Spanish olive oil without Italian and European restrictions. Being in the Eurozone is one reason Spanish unemployment is high. With a euro, all Spanish exports suffer from high prices. But, it isn’t just exports, its imports too. With devalued Peseta, Imports become more expensive, cheaper local production gets a boost and the tourists flock to Spain to take their vacations in its beautiful beaches.

I may be speaking in January 2013 at the University of Valencia on Spain’s biggest cost of being in the Eurozone – accepting an imposed austerity program from the outside, a European traditional false economic move. You see, the real issue for Spain is adopting an Austerity or a stimulus policy for the country. Austerity is what they have adopted and it may hold Spain back from adopting two behavioural economic rules that could solve its financial crisis without having to leave the Eurozone!

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