How does the current euro crisis show that fixed exchange rates are better than floating rates?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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Most economists would dispute this statement.  They would say that fixed exchange rates are never better than floating rates.

You can argue that a fixed exchange rate would have prevented the Euro crisis from happening.  This would be true because the EU would not have had to worry about its currency being devalued compared to other currencies.

But economists would argue that this would not really have helped the EU.  They would say that having a currency that is artificially high is bad.  For example, keeping their exchange rate high would prevent companies in the Euro zone from being able to export their goods as easily as they should.  More generally, having a fixed exchange rate simply distorts markets -- it makes the currency cost more than it ought to and that is never a good thing because currencies should be able to float to whatever price the market would set for them.

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