Whatever the immediate prescriptions being devised to solve the eurozone crisis, ultimately to get out of the mess, Ireland, Greece, Portugal, Spain, Italy (with probably more to follow) have three simple options, 1. stimulate their domestic economy 2. Export their way out 3. Sell some of their assets to international buyers.
In the medium term, an austerity package mostly rules out one, and in the longer term an over-valued euro rules out all three.
Both to rescue the weaker economies and to avoid a breakup the euro must be at a level which is consistent with a clearing value for weakest and most troubled economies. The single currency does not appear to be overvalued for Germany, the biggest eurozone nation. Intuition might suggest that the economic health of Germany, which has the largest slice of eurozone GDP, should have the greatest influence on the euro exchange rate, but this is wrong. The international value of a common currency binding many different nations together must eventually converge to a price which clears the marginal cost of goods, services and assets of the least competitive and weakest economies. The reason is simply, if it does not, monetary union will become untenable which will result from one of the following two paths:
1. The political and economic fallout will spread progressively from the weaker economies to the stronger ones, as the stronger economies are asked to foot increasingly larger bills to bail out the weaker ones deepening the required pit of rescue money. This will cause the burden on the richer economies to escalate, at the ire of the electorate. The political will to remain in the euro will diminish and raise the risk premium on the euro, which will cause it to fall.
2. The weaker economies will weaken further, ultimately making monetary union untenable and cause the ultimate breakup of the eurozone. This will also raise the euro risk premium and its value must therefore fall.
Since the euro was originally devised primarily for political considerations, the first route to the fall of the euro is more likely. But fall it must.