Posted by WARREN MOSLER on May 17th, 2010
The old german model was tight fiscal to keep domestic demand down, costs down, to help exporters. this made the mark strong so they sold marks vs dollars to keep it weak at the expense of the macro economy but to the benefit of the exporters.
The euro zone is trying same but can’t buy dollars for ideological reasons- it would look like the dollar is backing the euro as a reserve currency, etc.
So the euro gets strong to the point where the export strategy is thwarted. Hence it went up to 160 to the dollar before it all broke down and ‘automatic’ counter cyclical deficits kicked in which weakened the euro, which they are now trying to reverse with austerity. But going broke trying, etc.
From Pragmatic Capitalist: