Although the depreciation of the exchange rate does create challenges for monetary policy because of the adverse impact on inflation, a floating exchange rate acts as a shock absorber and is an important part of the adjustment process in dealing with a deteriorating current account deficit.
If governments, the EU authorities, the European Central Bank itself, judge the progress of the troubled countries in financial restructuring and structural reform positively, this must be followed by a practical commitment on their part to orient the markets’ assessments in the same direction.