Bloomberg News

Central Banks Should Devalue Euro to End Crisis, Kulvik Says

December 09, 2011

Dec. 9 (Bloomberg) -- Central banks should consider devaluing the euro toward parity with the dollar to help resolve Europe’s debt crisis, said Hannes Kulvik, a Geneva money manager and former economic adviser to the Finnish government.

“There is one more option” to save the euro region, said Kulvik, who oversees about 150 million euros ($201 million) including equities at Sifter Group. “Increase competitiveness and growth through a controlled depreciation of the euro.”

Central bank governors should coordinate intervention in currency markets in a move similar to the 1985 Plaza Accord, Kulvik said in an interview in Geneva. Governments concerned about trade imbalances met 26 years ago at the Plaza Hotel in New York and agreed to devalue the dollar. Kulvik’s native Finland devalued its currency in 1991.

A weaker currency may increase the value of companies’ assets outside the euro area and boost earnings, helping to stimulate European economies threatened by recession, according to Kulvik, who was an economic adviser to former Finnish president Martti Ahtisaari.

The euro traded at $1.3358 as of 10.39 a.m. in London, after gaining almost 12 percent against the dollar since last year’s June 7 low. The currency will strengthen to $1.37 by Sept. 30 next year, according to a Bloomberg survey of analysts.

A forced depreciation of the euro isn’t a likely outcome of discussions between European governments, said Johannes Jooste, a strategist at Bank of America Corp.’s Merrill Lynch Wealth Management. “Our expectation is for the euro to weaken on its own,” he said.

--Editors: Dylan Griffiths, Frank Connelly.

To contact the reporter on this story: Giles Broom in Geneva at gbroom@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net


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