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The euro hit a two-month high against the dollar earlier this week, prompting some to wonder whether the currency is overvalued at the moment. Time will tell, but the ups and downs of the currency are nothing new. To mark moments in the young currency's history when it has been overvalued, INSEAD 's Antonio Fatas charted the dollar/euro exchange rate against the Purchasing Power Parity. (Note: Fatas used the German mark to estimate what the value of the euro would have been had the currency existed before 1999): Fatas: The Euro has fluctuated from a high value of 1.59 in July 2008 to a low value of 0.59 in February 1995. Are these numbers comparable? Not quite. Currencies are expressed in nominal terms so they are likely to move over time when inflation rates are not the same in both countries. In this particular case, we have witnessed an upward drift of the Euro over the years because inflation was on average lower in Europe. This trend can be captured by estimates of Purchasing Power Parity (PPP), in red in my chart. But even when we take into account this trend, the value of 0.59 in 1985 was a significant undervaluation of the Euro (the German Mark then) in comparison to PPP (around 0.95). Same for July 2008, the value of almost 1.6 represented a large overvaluation of the Euro relative to its PPP value (below 1.2). We also see in the chart that episodes of overvaluation or undervaluation relative to PP are persistent. A strong Euro in the late 70s was followed by a very weak Euro during most of the 80s. During the 90s the Euro was in general above PPP estimates. Before the official launch of the "real" Euro in 1999, the German Mark was already heading down and this trend continued leading to another episode of undervaluation of the Euro. An episode that was stopped by a join intervention of the US Fed and the ECB in November 2000. Since then the Euro became stronger and stronger until it reached its peak of 1.6 in July 2008. So, Fatas sees the euro as overvalued today, though not at an historically unprecedented level. Read The overvalued Euro here .

Der Spiegel has a fascinating, and at times provocative, interview with Wolfgang Reitzle , one of Germany's most prominent and respected business leaders. Reitzle argues that, while he does not expect the euro zone to fall apart, he believes that the EU's leading economies, Germany in particular, need to draw some clear lines to prevent policy makers from doing too much to protect the currency. And he, like so many Germans worth a fraction of his wealth, is tired of feeling like his country has to keep propping up Greece and Italy. Here is an excerpt from the interview: SPIEGEL: Are you saying that withdrawing from the monetary union would be advantageous for Germany? Reitzle: No, but I believe that the German economy would have weathered such a shock within a few years, and would even become more competitive in the long run. To put it clearly: I don't think this scenario is desirable, but it also shouldn't be declared a taboo. And from a personal standpoint, I don't agree with a large share of my taxes ending up in countries that don't manage their economies responsibly. SPIEGEL: At the moment, the German economy is actually benefiting from the crisis. The weak currency and low interest rates act like an economic stimulus program. Reitzle: And we need this prosperity, because it's inevitable that we will be presented with the bill for the euro in the end. But this imbalance in the euro system must be corrected in the long term. The debt-ridden countries don't just have to reduce their debts. They also have to revamp their economies… SPIEGEL: …which is difficult, if not impossible, because they lack their own currency to devalue. Reitzle: And that's why the lack of competitiveness in the euro zone has become practically set in stone. If Italy still had the lira, it would have been devalued long ago to make the country competitive again, because wages there, as in Spain and France, have risen far too quickly -- in sharp contrast to Germany, by the way. SPIEGEL: But all of this shows that the euro brought together things that don't belong together: highly developed, industrialized nations and agricultural countries… Reitzle: …as well as different mentalities. And, most of all, countries that are dissimilar in terms of efficiency. It is evident that the euro was introduced far too soon. In retrospect, anyone can come up with the perfect explanation for why all of this couldn't possibly work. But that doesn't do us any good. Now we have to see where we stand and what steps to take so that everything doesn't fall apart. There's more to it than just muddling through. Germany is being given the leading role here, whether we like it or not. Not everyone ticks the way the Germans do, but sloppy economic management will no longer be tolerated. There will still be substantial differences, just as there are in the United States of America. SPIEGEL: Do you see the United States of Europe as a goal? Reitzle: Yes, in the long term. In 2050, the United States will still be a global power and China will probably be the dominant economic power. Europe will only be able to keep up if it manages to achieve a political unification process in addition to the monetary union, and if it includes Russia. However, if we even mess up the monetary union, Germany will be an attractive island, just as Switzerland is. But will we be relevant in the world anymore? Probably not. That's why it's worth doing everything we can. Read the full interview here .

If you want to look tall, stand next to a bunch of short people. If you want your debt-to-GDP ratio to look small, stand next to....Japan? Yes. Forget Greece, Italy, and the other Euro nations for just a moment. Glassman Wealth Services , has an infographic that shows why there is some reason to worry about Japan: Designed by elefint designs (via infogra.ph )

Battles between your present self and your future self are not fair. Your present self holds advantages and is always poised for victory. So says Daniel Goldstein in this illuminating Ted Talk . And Goldstein, Principal Research Scientist at Yahoo! Research , is working on developing some ways of making the battle more even. Because if we don't find ways of helping our future selves win, then we are setting ourselves up for financial struggle. (Spoiler alert: yes, this is about saving.)

IMF researchers S. M. Ali Abbas , Nazim Belhocine , Asmaa El-Ganainy , and Mark Horton are trying to make the task of studying debt cycles and debt sustainability easier. They have begun building a database of historical public debt. At VoxEU , they have posted a series of interesting graphs from the data they have compiled so far. Including this one, that they say provides an "historical perspective of debt developments in advanced, emerging, and low-income economies. Debt levels in advanced economies (now the G20) averaged 55% of GDP over 1880–2009, with a number of peaks and troughs that correspond with key historical events along the way.": Here is what the authors say about the value of this data moving forward: The composition of the 11 debt reductions observed during 1880–1914, the first era of financial globalisation, is quite similar to that witnessed in the post-1970 financially liberalised period. In both cases, the debt ratio reductions were mainly caused by large primary surpluses. In fact, the post-1970s debt reductions are accounted for almost entirely by primary surplus improvements. However, insofar as such improvements are boosted by the cycle and easier to implement in the context of strong growth, these results may somewhat understate the true role of growth in debt declines; strong growth was a consistent feature of most debt decline episodes.2 That conventional fiscal adjustment and growth have led the way in periods of global financial integration is intuitive as well as consistent with previous studies (such as IMF 2010). Looking ahead, highly indebted advanced economies are confronted by a challenging landscape. The pursuit of unconventional options – such as reverting to financial repression policies akin to those taken during the post-WWII years, reducing the burden of domestic debt through higher inflation, or restructuring – may be a temptingshortcut but it comes with high costs. A gradual but steady adjustment is the right way to go. History shows an orderly adjustment is much easier in the context of sustained medium-term growth. This suggests that there is a premium on both implementing structural measures that improve competitiveness and the business environment, and designing fiscal adjustment in a manner that minimises the drag on growth. Read Lessons from a century of large public debt reductions and build-ups here .

Speaking at The Economist 's Buttonwood Gathering , Tom Kaplan says that if a Martian were to visit the US in 1973, and then jump ahead to today, that Martian would be appalled by our policymakers' inability to prepare for long term problems. While we don't understand why Kaplan, chairman of the Electrum Group , uses a Martian as the observer, his point is a good one to consider. Kaplan argues that the US needs to be less reactive in its economic and energy policies, and plan ahead much, much better. Access more video from the Buttonwood Gathering here .

Paddy Hirsch likens Italy to a mountain climber who has been able to survive high altitudes and, therefore, may be less scared of the "Death Zone" than others. In 1993 the yield on Italy's ten-year bonds was nearly 13%, and the economy survived. So why are we concerned about the future of the Italy after rates went past 7% last week? Well, to carry out the metaphor, Italy is no longer climbing alone. Hirsch explains in this Marketplace Whiteboard : The root of Italy's problems from Marketplace on Vimeo .

The epicenter for concern in Europe has shifted from Greece to Italy, with interest rates on Italian bonds rising past 7% today. The rise comes despite the European Central Bank (ECB) buying up bonds over the last week in an effort to counter massive sell-offs by investors, according to the Wall Street Journal . If Italy can't attract investors and raise funds to honor its debt, Europe faces a much bigger challenge than it has been facing with Greece's debt struggles. Barry Eichengreen , professor of Economics and Political Science at the University California at Berkeley, says the days of Germany's and France's leaders managing Europe's effectively are over. At Project Syndicate , Eichengreen argues that the only option for Europe's leaders now is to bolster the ECB: Specifically, the ECB must do much more to support economic growth. Its decision to cut rates by 25 basis points at the first policy meeting under its new president, Mario Draghi, is the one ray of light in an otherwise darkening sky. But 25 basis points are a drop in the bucket. With Europe headed for recession, the danger of rising inflation is nil. Still, given German sensitivities, Merkel should use her bully pulpit to reassure her public. More controversially, the ECB needs to increase its purchases of Italian bonds. Unless yields on those bonds fall to German levels, there is no way that Italy’s debt arithmetic can be made to add up. But Draghi has indicated that he is reluctant to see the ECB become a lender to governments. Reassuring the markets by adopting structural reforms, he has observed, is properly the responsibility of those governments, not of the central bank. But structural reforms cannot be accomplished overnight. Italy needs time to put its pro-growth reforms in place. Not providing that time would sound the death knell for the euro. Here’s where the political cover comes into play. Merkel and Sarkozy need to make the case that if the euro is to become a normal currency, Europe needs a normal central bank – one that does not merely target inflation like an automaton, but that also understands its responsibilities as a lender of last resort. Read Europe’s Darkness at Noon here .