by Muir Macpherson
(Bloomberg) — Inflation in the euro area is the “least bad” option for U.S. companies such as Ford Motor Co. and Apple Inc. as European leaders consider policies to boost growth, according to a Bloomberg Government Study.
Rising prices in the 17 nations using the euro would cause less economic hardship than austerity measures or an exit from the currency in economies where high borrowing is needed to finance trade deficits, according to “Euro Crisis Solutions: The Trillion Dollar Stakes for U.S. Companies” released yesterday.
“Austerity hurts demand for all goods,” J. Muir Macpherson, who wrote the report, said in a phone interview. “Leaving the euro hurts demand for foreign goods.”
Policy makers in the 27-nation European Union, the largest U.S. export market after Canada, are considering measures to keep the monetary union intact as high borrowing costs in nations including Greece, Italy and Spain threaten the euro. U.S. Treasury Secretary Timothy Geithner met July 30 in Frankfurt with European Central Bank President Mario Draghi, who last week said officials will do whatever is needed to preserve the currency.
Inflation would bring prices in line across the euro area, letting European countries balance their trade flows and increase U.S. exports, according to the BGOV study. Such a strategy would need the support of Germany and the ECB, which have been wary of allowing inflation to go unstopped.
For more information, or to gain access to this study, contact the BGOV team.