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Nonsense. The comment assumes that being "competitive" is a must. That the hardships of the "agenda 2010" made sense and that the Greeks had to do the same, until all countries are competitive and we talk about the interplanetary trade. Wrong, but not in the way you imply.
by Katrin on Fri Dec 9th, 2011 at 05:59:00 PM EST
[ Parent ]
The commenter assumes that, in a union that incorporates eurobonds, people are asking Germans to become less competitive. Why would someone automatically assume that?

Why is that the only option? Why not investment?

by Upstate NY on Fri Dec 9th, 2011 at 07:25:56 PM EST
[ Parent ]
Because competitiveness, in this sense, is a zero-sum game: If Greece is to become more competitive relative to Germany, Germany obviously has to become less competitive relative to Greece.

The idiocy is in assuming that this will make Germany less competitive relative to China, the US and (snicker, giggle) the UK. Dealing with that is the reason God gave us floating currencies.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Dec 9th, 2011 at 08:07:54 PM EST
[ Parent ]
Right, but he used the words "less productive and competitive." I thought he was assuming that Germany would wind down or something.
by Upstate NY on Fri Dec 9th, 2011 at 09:29:27 PM EST
[ Parent ]
Well, one argument (forwarded by Krugman for example) is that resolving the intra-EZ competitivity problems should come through higher German inflation. This would radically weaken German competitivness not only against the PIGS (which is the very idea), but also against the UK, US, China, Japan, and so on. Which is quite unacceptable.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sat Dec 10th, 2011 at 12:29:25 AM EST
[ Parent ]
but destroying the economies of the greeks and spaniards (and italians, and portuguese, and irish, and latvians, etc.) is quite acceptable.
by wu ming on Sat Dec 10th, 2011 at 02:58:54 AM EST
[ Parent ]
Of course, they are uncompetitive.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Mon Dec 12th, 2011 at 09:32:57 AM EST
[ Parent ]
Well, they are. That's the problem, after all.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Wed Dec 14th, 2011 at 06:15:08 AM EST
[ Parent ]
There are two ways to deal with uncompetitive industry. To dismantle it, or to improve its capital through investment.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Wed Dec 14th, 2011 at 06:30:55 AM EST
[ Parent ]
Or you can devalue your currency.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Wed Dec 14th, 2011 at 08:36:37 AM EST
[ Parent ]
Or cut costs.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Wed Dec 14th, 2011 at 08:36:54 AM EST
[ Parent ]
That's "dismantling it".

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Wed Dec 14th, 2011 at 08:38:18 AM EST
[ Parent ]
Which is code for reduce living standards to third world levels.
by Colman (colman at eurotrib.com) on Wed Dec 14th, 2011 at 08:39:43 AM EST
[ Parent ]
For instance we can dismantle our substandard (compared to surplus countries) welfare states.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Wed Dec 14th, 2011 at 08:42:42 AM EST
[ Parent ]
M: That's "dismantling it".

C: Which is code for reduce living standards to third world levels.

Dear friends, you know that I respect both of you highly, but those are just disingenuous comments. It might be that those things mean something entirely different to you than they mean in contemporary Swedish debate, like how we some months back found out that "competitiveness" meant completely different things to us. To me it meant a company that can successfully sell its products on the international markets, while to you it meant social retrenchments and neoliberal politics.

To me, cutting costs is nothing but the constant process of all businesses to lower the cost of their product through any means available, be it innovation, smarter organization, capital structure or whatever. Call it lean/kaizen or something else. It happens all the time in all companies to maintain their competitiveness. It's not about dismantling industry or introducing third world living standards.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Wed Dec 14th, 2011 at 08:58:31 AM EST
[ Parent ]
To me, cutting costs is nothing but the constant process of all businesses to lower the cost of their product through any means available, be it innovation, smarter organization, capital structure or whatever. Call it lean/kaizen or something else. It happens all the time in all companies to maintain their competitiveness. It's not about dismantling industry or introducing third world living standards.

That is because you have a protected domestic market in which the most productive Swedish industries can cannibalise the less productive Swedish industries.

Absent the protected domestic market, there is no guarantee that the dismantled industries are replaced by more productive domestic industries - they may instead be replaced by imports.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Dec 14th, 2011 at 10:15:24 AM EST
[ Parent ]
Absent the protected domestic market, there is no guarantee that the dismantled industries are replaced by more productive domestic industries - they may instead be replaced by imports.

Ironically, I once closed a debate with Starvid with just such an example.

Tough competition in the refrigeration and freezing appliances market is forcing Danfoss to move its production of refrigerator and freezer thermostats from Nordborg to Danfoss' factory in Slovakia. The relocation, which is expected to be completed by the end of 2005, will affect around 77 employees.

...

This event cannot be accommodated within Ricardo's theory. Under Ricardo's theory, Danfoss would use its capital and labour in Denmark to produce something else which can be exported to Slovakia, and some Slovak company would export thermostats to Denmark. Instead, what is happening is that Danfoss moves its capital to Slovakia, and its employees have to look for other jobs in Denmark without the benefit of Danfoss' capital also staying in Denmark chasing after labour. I suppose Danfoss' 77 employees could move to Slovakia to work for Danfoss there. I wonder how many of them would relocate to slovakia with a Slovak salary and benefits, if offered the chance. And this is within the European Union. There is no free movement of persons from Europe to China.


tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Wed Dec 14th, 2011 at 10:26:27 AM EST
[ Parent ]
This is due to the fact that Ricardo's theory requires capital (and other factors of production) to be immobile. Which Ricardo himself knew: "if capital freely flowed towards those countries where it could be most profitably employed, there could be no difference in the rate of profit, and no other difference in the real or labour price of commodities, than the additional quantity of labour required to convey them to the various markets where they were to be sold."

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Wed Dec 14th, 2011 at 10:36:11 AM EST
[ Parent ]
Sweden is one of the most forceful supporters of free trade (which is only natural when trade is 50% of your GDP), so claiming we have a protected domestic market is quite rich. Norway, however, has. At least when it comes to agricultural products. The current butter deficit in Norway has resulted in considerable butter smuggling from Sweden, with black market prices of butter topping €150 per kg (yes, really). :)

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Wed Dec 14th, 2011 at 10:33:38 AM EST
[ Parent ]
Sweden is one of the most forceful supporters of free trade (which is only natural when trade is 50% of your GDP), so claiming we have a protected domestic market is quite rich.

Floating currencies is a way to generate a protected domestic market.

Or, to be a bit more technical, by allowing the exchange rate to be the buffer variable that ensures balance of the foreign accounts, you obtain the Keynesian advantages of a closed economy and the Ricardian advantages of an open economy. At the same time.

(This is not a free lunch - it fucks over internationally active banks by subjecting them to exchange rate risk. But Hayek is the only one who cries for internationally active banks.)

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Dec 14th, 2011 at 10:38:20 AM EST
[ Parent ]
Oh come on. You can't argue that having a currency of your own is protectionism. Protectionism is quotas, tariffs, subsidies for domestic suppliers or discriminatory regulations for foreign suppliers, and so on.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Wed Dec 14th, 2011 at 10:45:04 AM EST
[ Parent ]
Take a look at China's currency policy and tell me again that currency policy does not create a protected market.

The Chinese case is an extreme one, because they target a surplus rather than balanced foreign accounts. But the basic mechanics are not so different at all.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Dec 14th, 2011 at 11:23:24 AM EST
[ Parent ]
The Chinese have a fixed currency, the opposite of a floating currency. So I don't see how that makes a floating currency protectionism. Rather the opposite.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Wed Dec 14th, 2011 at 11:26:38 AM EST
[ Parent ]
Not in the EU you don't.

(And the Euro has nothing to do with it - before that there was the Exchange Rate Mechanism and the bands, and before that fixed exchange rates and before that Bretton Woods - the Euro crisis is just like the string of devaluation crises we had prior to the mid-90s)

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker

by Migeru (migeru at eurotrib dot com) on Wed Dec 14th, 2011 at 08:42:03 AM EST
[ Parent ]
How does the EU deal with uncompetitive industry in accesion countries?

Cutting costs? Investing in capital improvement? Or dismantling it?

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker

by Migeru (migeru at eurotrib dot com) on Wed Dec 14th, 2011 at 08:43:26 AM EST
[ Parent ]
Having the EU decide such issues through diktat would hardly be in accordance with the principle of subsidiarity. That is, thankfully, still an issue for national governments.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Wed Dec 14th, 2011 at 08:59:09 AM EST
[ Parent ]
What? You're telling me the EU Commission doesn't deal with accession countries by diktat?

Accession countries don't have the luxury of subsidiarity. That's a privilege they earn upon accession.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker

by Migeru (migeru at eurotrib dot com) on Wed Dec 14th, 2011 at 09:00:45 AM EST
[ Parent ]
Then maybe accession countries should wait with seeking membership until uncompetitive industries they want to keep, have been made competitive. Off course, not all countries should do everything at all times. Sweden once was one of the leading builders of tanker ships. Not anymore. The Koreans and Japanese could build cheaper than we could, so we closed down our shipyards and freed up labour and capital which could then be used in more value-creating ways. But who cares, really? We do other things nowadays. Even earlier, we had a great textile industry. All gone. Missed by none.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Wed Dec 14th, 2011 at 09:15:27 AM EST
[ Parent ]
Did the shipyard labour Sweden freed really get redirected to other uses, or did they join the ranks of the early retired and the long-term unemployed?

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Wed Dec 14th, 2011 at 09:23:11 AM EST
[ Parent ]
They went into the auto industry, which like the shipyards were located in the area around Gothenburg. Swedish business and (private sector) labour unions alike believe in creative destruction and dynamism. Instead of focusing on protectionism they are confident that lost jobs in old industries will swiflty be replaced by better paying-jobs in new industries, as this has been the historical pattern. This stoicism is further supported by the workers knowledge that there's a generous welfare safety net which I'll help them out while they wait for those new better jobs.

Which is why these news were so astounding.

   

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Wed Dec 14th, 2011 at 09:31:14 AM EST
[ Parent ]
This stoicism is further supported by the workers knowledge that there's a generous welfare safety net which I'll help them out while they wait for those new better jobs.

Right, which is why dismantling the comparatively less generous welfare states in peripheral Europe is part of the medicine the doctor prescribed (after a frontal assault on the welfare states in core Europe, of course).

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker

by Migeru (migeru at eurotrib dot com) on Wed Dec 14th, 2011 at 09:34:27 AM EST
[ Parent ]
You won't find me saying isolated austerity makes any kind of sense whatsoever. :)

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Wed Dec 14th, 2011 at 09:41:21 AM EST
[ Parent ]
You're providing me with a great opportunity for Socratic debunking of the Eurozone's architecture.

It looks almost scripted :P

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker

by Migeru (migeru at eurotrib dot com) on Wed Dec 14th, 2011 at 09:42:30 AM EST
[ Parent ]
The pleasure is all mine. ;p

Jokes aside, these are the best kinds of threads at the ET. A lot like a debate in the seminar room, except they leave room for less rhetoric and require more clarity as everything is written down.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Wed Dec 14th, 2011 at 09:44:55 AM EST
[ Parent ]
If Germany finds inflation convergence on the higher rather than lower structural inflation rates unacceptable, then Germany does not want a currency union.

Fair cop, I guess, but then they need to stop pretending that they care about the future of the Euro and start stress testing their banks for getting paid back in Drachma.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Dec 10th, 2011 at 04:24:44 AM EST
[ Parent ]
If Germany finds inflation convergence on the higher rather than lower structural inflation rates unacceptable, then Germany does not want a currency union.

I disagree. Germany wants the currency union it signed up to 10 years ago.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Sat Dec 10th, 2011 at 04:38:30 AM EST
[ Parent ]
And I would like a power plant that runs on magic pony piss. Difference is, I can accept that basic arithmetic says I can't have that.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Dec 10th, 2011 at 04:44:33 AM EST
[ Parent ]
Too bad each and everyone agreed to launch such a power plant 10 years ago.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sat Dec 10th, 2011 at 05:05:44 AM EST
[ Parent ]
20. The whole thing was decided in the Maastricht Treaty. The first 10 years were the "convergence to the Euro" (convergence to low inflation, low interest rates, and low deficit, already).

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Mon Dec 12th, 2011 at 09:22:06 AM EST
[ Parent ]
The absurd thing is that it all might have worked if there had been some internal capital controls to reduce massive flows of funds from the core to the periphery. But the entire EU project is about the free flow of capital, goods, people and services. So ironically, to create a common currency, we would have had to roll back some of the basic principles of the union.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Wed Dec 14th, 2011 at 06:19:30 AM EST
[ Parent ]
Internal capital controls would be one way. In their absence, you could have had explicit recycling of surplus.

The point is the Euro could not work as designed and is blowing up after encoutering its first (perhaps externally triggered) crisis.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker

by Migeru (migeru at eurotrib dot com) on Wed Dec 14th, 2011 at 06:29:26 AM EST
[ Parent ]
As to the absurdity of using the single market as an excuse for inaction, see this thread, where I argue (on a topic not unrelated to the Euro crisis) that
They saw the build-up of "imbalances" and did nothing because "free movement of capital" prevented them from doing so.

In other words, Market fundamentalism, the belief that "the market knows best" and that intervention should be reactive and not proactive. Also possibly they believed (against all evidence from economic history and dynamical systems theory) that the "imbalances" would resolve themselves smoothly and not catastrophically.

Or they just didn't care.

Saying this

"There is nothing we can do to stop foreign exchange borrowing, and we don't even try. As members of the European Union, we have to respect the free flow of capital," he [Hamezc Istvan, director of Hungary's Central Bank] said.
in unconscionable in any case.


tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Wed Dec 14th, 2011 at 06:35:46 AM EST
[ Parent ]
The absurd thing is that it all might have worked if there had been some internal capital controls to reduce massive flows of funds from the core to the periphery.

That is what floating currencies do for you.

Replacing a market system that works with a ForEx rationing board that may or may not work is... perhaps to show an excessive enthusiasm for government solutions.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Dec 14th, 2011 at 10:19:55 AM EST
[ Parent ]

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