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German Unions Seeking Higher Pay Could Save the Euro April 30, 2012

Posted by proeconomia in Fiscal policy, Main, Monetary policy, News on Greece, On the crisis, Opinion.
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Good day to all and here is a nice piece to read when you have your break from Simon Johnson @ MIT. Here are two interesting excerpts:

“One of the biggest problems flowing from the euro area’s fixed currency is that wages and prices are too high in heavily indebted states, compared with Germany and a few others, leaving the higher-wage countries uncompetitive. Cutting wages in the troubled periphery would be difficult politically. Lower wages would also make it harder to pay mortgages, compounding the problems for banks and probably for public finances, too. The solution involves a move straight out of the gold- standard playbook, with a modern twist. Since monetary union began, Germany has had substantial productivity gains and only moderate wage increases, making it highly competitive. Eurostat reports that German wages rose 2 percent a year from 2000 to 2009, while Spanish wages increased by 4.7 percent a year in the same period — more than twice as fast. Because the currencies are the same, Germany’s competitiveness has made it tough for Spain and the other weaker states to sell their products in the euro area.” and,

“If the people in charge — mostly Germans at this point — insist that the adjustment must come entirely through a fall in the absolute level of wages and prices in countries with current-account deficits and large amounts of debt, then Europe is in for a difficult, and perhaps lost, decade. But if part of the adjustment can come through higher German wages — recognizing productivity gains and consistent with continued prosperity — the path forward will be easier.”

 

 

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1. Austerity has brought Europe to the brink again « Proeconomia - May 2, 2012

[…] unless Germany pursues policies that allow its surplus to contract. (Amen to that, see this post as well)”. Rate this: Spread the word:EmailPrintFacebookTwitterLike this:LikeBe the first to […]


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