“One could argue that the wages in the PIGS countries are too high and not “competitve” because of a strong euro, and this makes the currency overvalued”

This is why Spain and Ireland are in depression.

The lack of a British overvaluation where costs are also high, however, does suggest that other issues are at play as well.

My focus was more Asia here and the managed float of many currencies there. Here, the undervaluation is coerced by government policy. And that is a problem.

One should not bet against European currencies because they have a welfare state, high taxes, etc. I also pointed this out at the Pragmatic Capital blog.

One could argue that the wages in the PIGS countries are too high and not “competitve” because of a strong euro, and this makes the currency overvalued. I also think the Euro will fall against the dollar because the dollar would be propped up in the debt deflation environment, and the low interest rate environment in the Eurozone would make it a less attractive place for capital inflows.

Big Macs are more expensive in the Nordic countries due to higher salaries and taxes than in most other countries. For example, the minimum wage in Denmark is approx $15/hour, VAT is 25% and personal income tax is approx 45-60%.

Of course you can still argue that the currencies are overvalued, they may well be, but that doesn’t help you much if you have to wait a lifetime before there is a correction.

The Big Mac Index is interesting and a good starting point for further analysis, but it is a terrible tool as a stand alone basis for investment or speculation decisions.