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The High Cost of a Strong Euro

Given their strong performance during the COVID-19 crisis, and their US counterparts' ongoing debacle, European leaders who have been pushing for a stronger global role for the euro may be about to get their wish. But it may not be long before they regret it.

BRUSSELS – Europe is experiencing a “good” crisis. Despite the damage wrought by the COVID-19 pandemic and ensuing recession, its response has minimized the damage and bolstered confidence in the economy. Yet even this positive news carries risks.

The European Union has done a much better job of curbing COVID-19 infections and fatalities than, say, the United States. Moreover, its economic-policy response has been much better than expected, with all member states taking strong action to entice firms not to lay off workers. As a result, unemployment has barely risen.

If the EU’s economic recovery is as strong as currently seems likely, it should be easy for firms to restart production with the same workforce they had before the crisis. In the meantime, powerful discretionary fiscal measures are supporting demand.

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