Does Europe Have a Korean Option? - Simon Johnson - Project Syndicate

Does Europe Have a Korean Option? - Simon Johnson - Project Syndicate:
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While depreciation would never be eurozone officials’ stated policy, it currently looks like all roads lead in that direction.

Of course, currency depreciation is not a panacea. The South Korean situation also involved difficult steps, including a confrontation between the government and the largest chaebol, some of which had quite blatantly violated the law. After a series of showdowns, in which one company, Daewoo, threatened to default, and political forces rallied to its assistance, the government won; the hugely powerful Daewoo group underwent bankruptcy and restructuring. Overall, South Korea managed to curb its corporate sector’s excessive power (which holds lessons for dealing with today’s mega-banks).

Similarly, Europe needs to fix its deeper structural problems. It needs a fiscal center – much as the United States needed a federal authority to tax in 1787. Indeed, the Europeans need the equivalent of the US Constitutional Convention – and the difficult ratification debate that followed.

But some depreciation of the euro would provide a bridge to reach internal governance reform. And, like it or not, rising pressure on the euro is likely to force European officials to cross it.