A big US monetary inflation bang brought the euro into existence. Here’s a prediction: It’s death will occur in response to a different type of US monetary bang — the sudden emergence of a “deflationary interlude.” And this could come sooner than many expect.
The explanation of this sphynx-like puzzle starts with Paul Volcker’s abandonment of the road to sound money in 1985/6. The defining moment came when the then Fed Chief joined with President Reagan’s new Treasury Secretary, James Baker, in a campaign to devalue the dollar. The so-called “Plaza Accord” of 1985 launched the offensive.