The Big Mac Index.


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    The Economist regularly publishes their Big Mac Index, which is a funny read presenting the price of the popular fast food at different places around the globe. The index is based on the idea that any particular good should have the same price, say, one dollar, regardless of the country where it is sold. According to this index the price of the Big Mac in Europe is about 16% overvalued compared to the cost of a Big Mac in the U.S.

    I listen to economists all the time and none of them can really explain satisfactorily why the Euro remains so overvalued. Even during these turbulent times the Euro value remains fairly constant.
    Of course this problem has a direct relationship to Spain’s current woes. If the Peseta still existed interest rates would be close to zero and the exchange rate to Sterling around 270. At least under that scenario Spain would have a fighting chance to extract itself from the financial mire they currently find themselves in.
    The implicit implication of the Big Mac index suggests to me that the Euro potentially will fall considerably in value at some point very soon.

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