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Prominent French economist says Germany should leave the euro

by afew Thu Nov 28th, 2013 at 02:42:20 AM EST

In a memo that we saw here, French bank Natixis' chief economist Patrick Artus, a well-known pundit on French media, describes Germany as a misfit in the single currency area, and outlines the macroeconomic case for D-exit.

This is a quick rundown of his points. The memo, in French, pdf, is here.

With the disclaimer that other fields than macroeconomics may be involved, Artus offers the following reasons for Germany to leave the euro:

  • asymmetry of cycles between Germany and Rest of Euro Zone (ROEZ)
  • weakening economic links between Germany and ROEZ
  • structural asymmetries between Germany and ROEZ
  • different foreign exchange needs between Germany and ROEZ
  • impossibility for ROEZ countries to carry out internal devaluations

Cycles: absence of asymmetrical cycles is a condition for a shared currency. But GDP growth and the unemployment rate show strong asymmetry:


(Real GDP, annual change in %)


(Unemployment rate)

The asymmetry stems from structural differences (see further down), and differences in how credit supports demand:


(Credit to households and business, annual change in %)

The result of this asymmetry is that common monetary policy is not adapted to the whole of the Euro area. Between 2002 and 2007, it was too restrictive for Germany, too expansionist for ROEX; since then, it has been the reverse:


(Repo rate and nominal GDP)


Weakening economic links: the more economic links there are between countries, the easier it is to maintain a common currency. But the crisis has led Germany to develop its exports outside the Eurozone, allowing it to hold on to its trade balance surplus:


(Germany, annual trade balance in €bn)

This results in a weakening of trade links between Germany and ROEZ, making fixed exchange rates less necessary:


(Germany, exports to EZ: thick line, in % of total exports, thin line, in % of GDP)

Structural asymmetry between Germany and ROEZ: (a) differences in sectorial structure, with greater importance in Germany of manufacturing and industry-related services:<>


(Added value in manufacturing, % of real GDP)


(Intermediary consumption of services by manufacturing, % of nominal manufacturing added value)

(b) Savings: population ageing and cuts in social transfers power a higher savings rate in Germany than in ROEZ, explaining the situation of the current account:


(Over 60s in % of 20-60 population)


(Gross household savings)


(Current account in % nominal GDP)

(c) Labour market regulation: deregulation in Germany has led to a very low-wage sector in services and agriculture that directly improves German cost-competitiveness in these sectors, and indirectly for industry via services. Income inequality has risen faster in Germany than in ROEZ (based on cited GINI figures, decile and quartile comparisons, and poverty percentages).

Differing foreign exchange needs: German industrial product mix is better than in ROEX, as shown by export price elasticity measures (0.3 for Germany as against 0.8 for ROEX; 1.1 for France!). A weaker euro is therefore preferable for ROEX, while Germany prefers a strong euro to keep down the cost of its imports, while its exports depend little on the exchange rate:


(Exports (1999=100), left, and EUR/USD exchange rate, right)

Inability of ROEX to implement internal devaluations: cost-competitiveness continues to worsen relative to Germany, so the correction of the ROEX current account (see above) has come about through compression of demand:


(Unit labour costs, 1999=100)


(Domestic demand, 1999=100)

So how to keep the euro?

The macroeconomic conditions for a monetary union between Germany and ROEX are not currently in place. What would probably be necessary:

accept growing concentration of industry and related services in Germany:


(Manufacturing added value of Germany in % of total EZ)

accept corresponding migratory flows, that have already begun:


(Net immigration in % of population)

correct resulting divergent income levels by appropriate transfers:


(GDP per capita in % of German)

Display:
Very quick job, please point out any errors.
by afew (afew(a in a circle)eurotrib_dot_com) on Wed Nov 27th, 2013 at 09:42:02 AM EST
He doesn't actually say that Germany should leave the euro. But the conditions for saving the euro that he outlines will not be accepted by Germany (transfers!!!), so it comes to the same thing.
by afew (afew(a in a circle)eurotrib_dot_com) on Wed Nov 27th, 2013 at 11:28:33 AM EST
[ Parent ]
The only deficiencies I could see were the lack of labels in English for the right side of some graphs, where the left and the right are differently denominated. It is so much nicer when I don't have to guess or assume what the graphs show.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Nov 27th, 2013 at 03:25:54 PM EST
[ Parent ]
The only one I can see is the exports compared to exchange rate graph, where the left side is exports (1999=100) (thick line Germany, thin line ROEX) and the right is the EUR/USD exchange rate.
by afew (afew(a in a circle)eurotrib_dot_com) on Wed Nov 27th, 2013 at 03:38:13 PM EST
[ Parent ]
Can we criticize the external surplus of Germany?
(quick translation of the summary)

ECONOMIC RESEARCH
Author: Patrick Artus
The European Commission considers that the very large external surplus of Germany is a reprehensible macroeconomic imbalance.
We believe that this is an error of analysis :
  • the bulk of the external surplus of Germany now appears vis-à -vis the outside world and not vis-à- vis the euro area; it is therefore not a levy on other countries in the euro zone;
  • the external surplus of Germany vis-à -vis the world outside the euro zone comes from the ability of Germany to redirect its exports to the world outside the euro area.  Domestic demand in Germany, which must be considered correcting for demography, is low but not significantly lower, and will be corrected with the introduction of a minimum wage and additional infrastructure spending


It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II
by eurogreen on Wed Nov 27th, 2013 at 11:05:33 AM EST
Wow. Has he ever heard of floating currencies and what happens to them?

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
by Cyrille (cyrillev domain yahoo.fr) on Wed Nov 27th, 2013 at 11:07:53 AM EST
[ Parent ]
that his grasp of macroeconomics is probably suspect. Pedigree usually doesn't mean much, of course, though given that he is virtually not recognised, at least in economics, outside of France, I would guess that here, his pedigree suggests the same sort of austerity-tinged tunnel-vision as afflicts the elite political and economic class in France and on the continent in general.

Patrick Artus is one of many so-called economic experts in France who have been calling loudly for deep reductions in public spending here in France all the while unemployment continues its long march upward.

That he is a regular feature in the PS Party economic organ "Alternatives économiques," is as depressing as it is unsurprising.

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Fri Nov 29th, 2013 at 06:14:48 AM EST
[ Parent ]
redstar:
That he is a regular feature in the PS Party economic organ "Alternatives économiques"

When was the last time you saw him there?

Care to provide evidence that Alternatives Economiques is a PS Party organ?

What do you think is mistaken in the macroeconomics shown above in the diary?

Yes, Artus is a well-known pundit (as I noted). But who analyses the failings of the euro as he does above, in the :

Parti Socialiste?

Parti Communiste Français?

Parti de Gauche?

EELV?

The new party Nouvelle Donne?

by afew (afew(a in a circle)eurotrib_dot_com) on Fri Nov 29th, 2013 at 08:16:38 AM EST
[ Parent ]
is well known to be leftish/PS style. Only people I know who read it are either PS or EELV voters. Of course calling it the official PS organ is hyperbole, but I stand by the larger point - it does represent the alternative views within the PS, albeit in reverse (proportionally more of the leftish, somewhat but only very somewhat neo-keynesian views and less of the austerian centrist Hollande/Moscovici/Valls views, which is the opposite of the party in power, though only in terms of proportion). I note their present issue is a stunning apologia for the present incompetent Hollande government's economic policy and I am not surprised.

A casual scanning of their archives gives me a couple hundred or so blog posts, interviews or tribunes with Mr Artus in the magazine over the past couple of years.

As for who on the left actually supports similar views on the matter, that would be M'PEP, major related economist would be Jacques Sapir.

Just because the Polytechnicien Artus isn't totally full of shit this time doesn't mean he normally is not, in the same way as a broken clock is correct two seconds a day, but incorrect the other 86.398 seconds.

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Fri Nov 29th, 2013 at 10:32:20 AM EST
[ Parent ]
redstar:
A casual scanning of their archives gives me a couple hundred or so blog posts, interviews or tribunes with Mr Artus in the magazine over the past couple of years.

One short article this year, in February. "couple hundred or so" must be hyperbole..?

There probably are people in the PS (on the left of?) who find Alter Eco congenial, and there probably are PS sympathizers who work there. That's a long way from your hyperbole. It's overall a useful mag that has gained readership (especially among students, offering different perspectives from the standard liberal garbage) after starting out in the '80s as a small workers' co-operative, (which it still is). Its general tone on Europe is very far from Hollande's ducking of the issues, and the main reason evoked in the current number for why everything wrong in France is not entirely Hollande's fault, is Europe-imposed austerity (yeah, I know, he should do something about that).

I'm not out to defend Artus on his record. The point here is that he is a well-known pundit, and what he's saying here is sufficently correct, generally unspoken, and surprising coming from a well-known pundit, to be emphasized. Hence the diary. Of course, little or no coverage in the French media.

by afew (afew(a in a circle)eurotrib_dot_com) on Fri Nov 29th, 2013 at 11:11:55 AM EST
[ Parent ]
I count 212 articles, blogposts and interviews in the archives doing a simple search on his name...

The Hun is always either at your throat or at your feet. Winston Churchill
by r------ on Fri Nov 29th, 2013 at 12:07:21 PM EST
[ Parent ]
Articles by Patrick Artus are almost all on Page 1 of 10 in the search results. The overwhelming majority of the items are simple references to his name within articles written by others.

As I'm a well-known pink-green traitor to the working class, I've been a subscriber to Alter Eco since the late '80s. I can assure you that Artus is very far from being a regular or typical presence among the writers there.

by afew (afew(a in a circle)eurotrib_dot_com) on Fri Nov 29th, 2013 at 12:51:02 PM EST
[ Parent ]
and commies are baby-eaters.

Wind power
by Jerome a Paris (etg@eurotrib.com) on Fri Nov 29th, 2013 at 12:53:12 PM EST
[ Parent ]
The thing is, being partially right about most things (as the French elite such as yourself are trained to be) and often with flourishes of brilliance (those over-subsidized prepa classes help, of course) but often very wrong about the fundamentals (see french elite wedded to not just the notion of the Euro but its actual fact, of course you are not touched by unemployment but your putative european concitoyenare, in spades).

But even if you all are not full of shit, which I grant you, you are very very often unjustly full of yourselves. I offer both you and your England-based co-religionist as examples.  And self-referential in terms of professional relationships, nearly incestuous. And extremely and conventionally closed-minded when it comes to anything outside the rentier framework to which you are accustomed.

Good thing for you you've got some patrimony in that framework. Most French don't. And that President of yours only accentuates the disconnect.

Congrats though in turning wind into a rent-seeking activity. After the Dutch and English (the world's first entrenched rentier classes) it is normal for a Parisian  to make his mark in the same path, as your town is rentier par excellence. Y'all may think you're making inroads, but economically you are only hastening the decline.

Not that that bothers PS folks such as yourself. You're about power, however temporary, not about growth and prosperity for all. How else to explain your miserable government.  

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Mon Dec 9th, 2013 at 09:33:36 PM EST
[ Parent ]
[ET Moderation Technology™]

If you can't stop personal sniping in your comments, please refrain from commenting.

by afew (afew(a in a circle)eurotrib_dot_com) on Tue Dec 10th, 2013 at 02:36:15 AM EST
[ Parent ]
What actions could be taken presently, at least in theory, that might make Germany consider leaving the Euro? How could the issue be forced? Until or unless the matter is forced most of the Euro-zone countries will continue to be damaged by policies favorable to Germany. And if those policies are to change the only reason Germany would agree would be because of the threat of being forced our of the Euro-zone.

A new Eurozone minus Germany could be a powerful force for improvement for its members, IF the remaining members embrace policies of mutual benefit. But I don't think Germany will leave voluntarily. Too many Germans, especially those in power, think they are entitled to all of the benefits they are currently obtaining from the Euro. How can a 'Germexit' be provoked? IMO, that would be far superior to creating a Seuro-zone.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Nov 27th, 2013 at 03:41:32 PM EST
Well, if Artus is right, the benefit that has been generally postulated on this site (exchange-rate depression helping German exports) is not that important, since their exports exhibit a great degree of price inflexibility (if that's the term). So where, indeed, is the overwhelming benefit of the Euro for the Germans?

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II
by eurogreen on Thu Nov 28th, 2013 at 03:31:05 AM EST
[ Parent ]
Well, several things.

There is some inflexibility -although I would be prudent before stating that it is long-run inflexible. China may decide at some point that it will build some machines themselves. Or stop buying so many -then Germany would need the peripheral countries again.
But if the exchange rate was to double -and it may well be the order of magnitude, considering what the imbalances are- I'm not so sure that even short-run inflexibility would be so clear.

Now, imagine that this problem is not too big anyway. There remains another one: since Germany is determined to have a massive surplus, it needs to invest its savings abroad. Will it be all that happy to be facing a yearly depreciation of around 6-8% for the foreseeable future? After all, level of exports is not the obvious main target of a properly run economy. It may be that with its own currency, Germany's exports remain strong (although unlikely that they will be so strong, just look at when and how the trade surplus did open). But they would not be better off -certainly, savers would not be. And they are the ones that matter, as we well know.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Thu Nov 28th, 2013 at 04:53:44 AM EST
[ Parent ]
Actually, Germany would be better off, because exports are costs and imports are benefits. Germany would get more benefits for its costs.

Would suck to be a rentier in that economy, but fuck the rentiers.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Nov 28th, 2013 at 01:42:35 PM EST
[ Parent ]
That would suggest that leaving the Euro would be much better for German workers than for large German investors. Given that lowering wages has been a decades long goal of German conservatives, such a development  would give those running policy in Germany a significant incentive to compromise to maintain the Euro, were their membership in the EZ to be threatened.

But it doesn't answer the question of what would cause Germany to want to leave the Euro.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Nov 28th, 2013 at 02:04:07 PM EST
[ Parent ]
Well, I do realise that costs would be reduced.

Still, I strongly doubt that a doubling of the currency would be harmless for the export, so to maintain their sacrosanct trade surplus they would have to gut their consumptions outright.

And the whole point of having a trade surplus is to invest it. So that would make very little sense if the exchange rates eat it up.

The whole German model becomes moot without someone to pay for their mercantilist policies.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Thu Nov 28th, 2013 at 02:27:04 PM EST
[ Parent ]
And the whole point of having a trade surplus is to invest it. So that would make very little sense if the exchange rates eat it up.

This again is straight out of Hobson's Imperialism. For the British investor class in the second half of the 19th Century excess profits from British factories were invested in India, which Britain controlled directly. For Germany the Eurozone, as currently constituted, provided the same benefits and serves the same purpose. And, so far, the Troika has been a lot cheaper for Germany than all the colonial regiments Britain used to maintain in India.

I'll bet the Irish, Portuguese, Greeks, Italians and Spaniards never thought they were hiring an imperial master when they joined the Euro-zone, not to mention France. Maybe no one noticed because they did not have to learn German.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Nov 28th, 2013 at 02:43:36 PM EST
[ Parent ]
"I'll bet the Irish, Portuguese, Greeks, Italians and Spaniards never thought they were hiring an imperial master when they joined the Euro-zone, not to mention France. Maybe no one noticed because they did not have to learn German. "

Germany did not have a trade surplus then.

But indeed, had the Schröder policies been spelt out clearly ahead of the integration, it's unlikely that it would have gathered much support in Europe. The point was felt to be strengthening the European model (of decent social protection, for a start), not killing it, which is the apparent target at the moment.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Thu Nov 28th, 2013 at 03:25:54 PM EST
[ Parent ]
Cyrille: "There remains another one: since Germany is determined to have a massive surplus, it needs to invest its savings abroad. Will it be all that happy to be facing a yearly depreciation of around 6-8% for the foreseeable future?"

That would certainly be a problem for existing investments in Euro-zone countries were Germany to leave the Euro-zone. But most of the depreciation would likely occur immediately, rendering EZ countries X-Germany attractive targets for new investment. And, while German investors may take an immediate hit on the value of its foreign assets, should  not  assets become more competitive and, thus, their net present value should increase to offset the immediate loss due to currency revaluation?  

I agree that, medium to long term, there are probably hard limits as to how high a new Deutchmark could go relative to other countries without Germany becoming uncompetitive in its core products. Although a lot of those losses could well be to relocated subsidiaries of German parents. But would that not start bringing the downside of globalization home to Germany and result in a hollowing out of German Industry?

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Nov 28th, 2013 at 02:30:55 PM EST
[ Parent ]
Well, either Germany keeps its surplus and the appreciation will continue, or it does not and it does not.

Arguing that DM appreciation would not affect the surplus, or indeed increase it, implies that the appreciation would continue absent a majorly active central bank policy to manipulate the exchange rate.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Thu Nov 28th, 2013 at 03:23:35 PM EST
[ Parent ]
Well, it seems true that a country can usually defend the upper bound of an exchange rate by just issuing new currency to buy foreign currency, for instance. Is that not what the Swiss Central Bank has been doing? It seems like there ought to be some negative consequences and chief amongst them would be the possibility of domestic inflation. If I have got that right that would be a serious problem for many Germans - allegedly their biggest nightmare. It would indeed be ironic.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Nov 28th, 2013 at 07:18:25 PM EST
[ Parent ]
It's looking increasingly likely that inflation is a fiscal, not a monetary phenomenon, as Chris Cook has been pointing out for a long time.

Also, central bank reserves don't circulate, so I'm not convinced "printing money" to accumulate foreign reserves to depress your exchange rate will "lead to inflation". If anything, it is an attempt to arrest deflation (explicitly in the case of Switzerland). But, if by depressing your currency you sustain your country's current account surplus (and Switzerland's is over 10% of GDP) then you get deflation anyway because a current account surplus is a drain on your money base.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman

by Migeru (migeru at eurotrib dot com) on Fri Nov 29th, 2013 at 02:15:02 AM EST
[ Parent ]
"Also, central bank reserves don't circulate, so I'm not convinced "printing money" to accumulate foreign reserves to depress your exchange rate will "lead to inflation"."

I think you've got this backwards: the strategy would lead to increased reserve in foreign currency, but with more of the domestic currency on the open markets.
So, provided that those who exchange currency for DM are interested in spending them, it could lead to inflation/reduced deflation.

Especially if the quantities are huge.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Fri Nov 29th, 2013 at 02:24:48 AM EST
[ Parent ]
But if those foreigners were massively buying your domestic assets you wouldn't have a current account surplus.

Just look at Switzerland's last two years...

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman

by Migeru (migeru at eurotrib dot com) on Fri Nov 29th, 2013 at 03:43:03 AM EST
[ Parent ]
That's an entirely different argument from lack of circulation of central bank reserves.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
by Cyrille (cyrillev domain yahoo.fr) on Fri Nov 29th, 2013 at 05:16:33 AM EST
[ Parent ]
Maybe it's a different argument but it all boils down to the same thing: expanding the central bank's balance sheet is not inflationary.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Nov 29th, 2013 at 05:28:23 AM EST
[ Parent ]
But if those foreigners were massively buying your domestic assets you wouldn't have a current account surplus.

It might be possible for Germany to create a 'Euro- Deutschmark' funding market, analogous to the London Euro-dollar funding market, but such a market might be prone to more volatility and gaming as it would be a much smaller market. And then BuBa would acquire the same obligation of lender of last resort wrt Euro-Deutschmarks as the Fed has towards Eurodollars and Germans could have a major hissy over that. And the gaming possibilities could make the 'mark' the subject of a double entendre joke amongst FX traders.  

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Nov 29th, 2013 at 10:32:16 AM EST
[ Parent ]
The Fed has no LOLR function with respect to Eurodollars, that's why Eurodollar deposits pay higher yields than dollar deposits...

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Nov 29th, 2013 at 12:06:35 PM EST
[ Parent ]
None-the-less the Fed did support the Euro-dollar in 2008 and since by swaps with foreign central banks and the ECB as well as by being LOLR for the US arms of banks in London that needed dollar funding - indirect support but very real support. This came out very clearly in Perry Mehrling's Money and Banking course which I am just finishing.

The basic fact is that only the central bank for a given currency can perform LOLR functions for holders of debt denominated in that currency. It is important that this be done not so much for the sake of the bank but for the sake of the various derivative dealers that might be in departments of that bank.

The basic assumption of the assets being financed is:

Risk-less Asset = Risky Asset + Risk Insurance.
or
Risk-less Asset = Risky Asset + CDS + IRS + FXS

But risk insurance must be priced. If the derivative dealers in CDSs, IRSs and FX swaps are not supported in a crisis then they will not make markets. If they do not make markets risk insurance can no longer be priced and the risky assets get liquidated in a very disorderly and damaging fashion.

So it is the job of the Central Banks to provide liquidity as required until the panic is controlled. They effectively become dealers of last resort and have to begin to issue CDSs, IRSs and FXSs themselves and carry these instruments on their balance sheets. It is to be hoped that, seeing that they HAVE to perform such functions that they jointly agree to regulations that will make such an eventuality less likely. But that is very much a work in progress, if that is not too generous a term. Have a helping of Hopium.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Nov 29th, 2013 at 01:07:49 PM EST
[ Parent ]
Adding, of course, that it is in the futures market that a lot of the risk arbitrage is performed, so that they also need support in crisis.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Nov 29th, 2013 at 03:35:58 PM EST
[ Parent ]
Migeru:
It's looking increasingly likely that inflation is a fiscal, not a monetary phenomenon, as Chris Cook has been pointing out for a long time.

Well, to all but die-hard austerians, it is becoming increasingly obvious that deflation is a fiscal phenomenon.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Dec 1st, 2013 at 08:02:58 AM EST
[ Parent ]
No, immediate negative effect necessarily, but it would be active exchange rate management to stop appreciation, which is not what we expect to go down well with the German psyche.

Anyway, if all countries start doing that sort of thing, nothing stops the periphery (and France) countries to do the same... but with a lower exchange rate! Then we'll get central banks printing and printing, ad libitum, with no limit.
Then, once the periphery central banks have accumulated enough to essentially purchase Germany, a nice bout of inflation could ensue. Of course, the game would stop long before that.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Fri Nov 29th, 2013 at 02:22:34 AM EST
[ Parent ]
Anyway, if all countries start doing that sort of thing, nothing stops the periphery (and France) countries to do the same... but with a lower exchange rate! Then we'll get central banks printing and printing, ad libitum, with no limit.

In principle, yes. In practice, if two central banks commit to doing this at the same time, then they will fix the exchange rate instead.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Nov 30th, 2013 at 08:48:28 AM EST
[ Parent ]
There's a fairly commonly-stated German opinion that it doesn't matter if the euro rises, Germany will still be an export champion (one economist or whatever said that a euro at 1.45 USD would not be a problem). And that view is supported by Artus's price elasticity numbers, since German exports are at 0.3, very inelastic (meaning they don't have to reduce their prices to clinch deals).

However, the ROEZ as a whole tends to moderate the position of the euro wrt other major currencies. The view often stated here is that, if Germany still had the DM, it would be considerably stronger than the euro. In fact, it would strengthen as a function of German export volumes. That would crimp Germany's style. So it is reasonable to think that Germany gets an advantage from the euro.

by afew (afew(a in a circle)eurotrib_dot_com) on Thu Nov 28th, 2013 at 05:41:19 AM EST
[ Parent ]
I'd really question the price-elasticity numbers because there doesn't seem to be enough comparative data to generate them accurately.

As such, a lot of the talk about Germany's ability to remain an export champion at higher exchange rates is largely either:

  • naive extrapolation from a simpler time (W. Germany)

  • macho myth making rooted in a belief that price doesn't matter if quality is high enough. That's true for some sectors and segments of other sectors, but when you add all that up, it's a smaller market than people think.

  • ignorance of the new world of global trade. The key point here is that to remain competitive companies (e.g. Mercedes Benz) have developed factories in other parts of the world (e.g. USA, China) and the profits from those factories may stay constant, but their value on the company balance sheet changes if the exchange rate moves up. Nobody I know of has written about this regarding Germany, but there are some commentaries on Japan (particularly Sony) that highlight how this causes problems.
by Metatone (metatone [a|t] gmail (dot) com) on Sun Dec 1st, 2013 at 05:46:34 AM EST
[ Parent ]
It's true the elasticity figures are Natixis' own calculations, based on what is not specified.
by afew (afew(a in a circle)eurotrib_dot_com) on Sun Dec 1st, 2013 at 06:01:28 AM EST
[ Parent ]
I can only hope that Bepe Grillo picks up on this blog post.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Nov 27th, 2013 at 03:45:05 PM EST
beppe's been tooting this horn for a long time. he doesn't think the germans will want to be in any different kind of eurozone than this one, that if the other EZ countries stand together and threaten to leave germany alone with the euro-mark, she will either change policies so not to be perceived by history as the mean-spirited opportunist that broke the common currency through hysterophobia of inflation, or leave to avoid the embarassment.

in other words germany's position is a bluff waiting to be called, and renzi says he's the man to do it.

the 5* movement have the same approach, tell the ECB to take a hike and see what happens...

yes it would be a mess if the euro crumbled, but a slow strangling through austerity is not necessarily am easier fate.

letta, sack-o-money, fassina are stooges to keep the status quo, spinning green-shoot fantasies to keep the balls (of steel) in the air. they will never challenge the ECB, their job consists of dispensing the soothing anesthetic to the public while the country's assets are flogged off to the highest bidder.

berlu's leaving is symbolic, but the problems run much much deeper than just him.

he is puffing out his chest and saying 'l'etat, c'est moi!', when not indulging in the most shameless victimology, such as his claim that his family is suffering (in their palaces!) much like the jews did in the lagers.

painfully hilarious...

they are interviewing b's supporters in the street, and it's curious how in some ways they resemble the tea party.

the same mix of dumb and schmaltzy.

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Wed Nov 27th, 2013 at 06:42:09 PM EST
[ Parent ]
Did the 35-hour week damage the French economy? (in French).

Relevant because it compares labor cost changes over quite long periods and shows the impact of the Harz IV reforms in Germany.

Wind power

by Jerome a Paris (etg@eurotrib.com) on Fri Nov 29th, 2013 at 12:54:33 PM EST

Labor unit manufacturing costs

Wind power

by Jerome a Paris (etg@eurotrib.com) on Fri Nov 29th, 2013 at 12:55:45 PM EST
[ Parent ]
Can minimum wage, pension increases, and high wage increases in German industries balance European economy? Acts which are likely to increase internal consumption in Germany seems to be easier for Germans to accept than transfers to other Eurozone countries.
by Jute on Mon Dec 2nd, 2013 at 01:38:40 PM EST
[ Parent ]
Five years ago, the answer to that question was unambiguously "yes."

Today... I'm not so sure.

Increased exports to Germany supposes the existence of export industries in the periphery, which in turn supposes the existence of industry in the periphery. And Germany has been busy spending the last four to five years making damn sure that there's nothing resembling a functioning industrial state anywhere in the Mediterranean drainage basin.

It may well require substantial German reparations to get to the point where German import demand can drive an industrialization of the periphery's industry.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Dec 2nd, 2013 at 02:43:26 PM EST
[ Parent ]


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