European relative value trades have been around for a long time. While the advent of the euro a decade ago took much of the margin (or cost to non-speculators and dealers) out of the business, exchange rate risk could be coming back to the continent.

The eurosceptics, of whom I was one, turned out to be right on some points. The monetary policy that was suited for the “core” countries of Germany and France was initially too inflationary, then too deflationary, for the Irish, Spanish, and Greeks. Without an exchange rate mechanism to carry some of the burden of regaining competitiveness, their fiscal and social costs of adjusting to the global recession are high.