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The problem with that plan is that the only wage adjustment that will allow the periphery to compete without dragging the whole Eurozone into permanent depression is for German wages to rise.

And there is no mechanism in your proposal that accomplishes that.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Aug 28th, 2012 at 05:19:10 PM EST
[ Parent ]
I agree they need to rise.
But even then, I think, much of the problem would remain.

Well, maybe not in the long run. Or medium run possibly, but long enough for implosion.

I can't imagine that production would move all that fast from Germany to the periphery once German wages rise -especially since regional economics are at play, and there is a need for clusters.
Plus, is that really desirable? Waves of industrial migration?

It does make sense to have some level of long term specialisation between countries, but then there will always be asymetric shocks and we'll need transfers. Significant ones at that.

It should not be a problem for a union. That it is one shows that we are anything but.

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

by Cyrille (cyrillev domain yahoo.fr) on Wed Aug 29th, 2012 at 01:46:06 AM EST
[ Parent ]
The neoliberal agenda that is now made compulsory by the treaties (or by their usual reading, at any rate -there are articles that go directly against it but somehow they don't seem to be considered binding these days) is incompatible with the European project.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
by Cyrille (cyrillev domain yahoo.fr) on Wed Aug 29th, 2012 at 01:48:44 AM EST
[ Parent ]
I didn't see your comments before posting mine below, but we were obviously thinking along some similar lines.
by afew (afew(a in a circle)eurotrib_dot_com) on Wed Aug 29th, 2012 at 02:12:59 AM EST
[ Parent ]
we are anything
by PerCLupi on Wed Aug 29th, 2012 at 03:54:21 AM EST
[ Parent ]
I agree they need to rise.
But even then, I think, much of the problem would remain.

Then they aren't rising far enough, fast enough.

They don't need to rise far enough, fast enough to reverse the sucking of industry into Germany. But they do need to rise fast enough, far enough to halt it, and to make German wage-earners spend on whatever the periphery still produces.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Aug 29th, 2012 at 05:17:48 AM EST
[ Parent ]
There's no immaculate transfer.
Give them a big pay rise by all means but they'll mostly spend locally -or save.

And Migeru has repeatedly shown how Spanish wages are still weak even as they have risen. I don't want that to be the eternal status quo. We need to make sure that decent wages in the periphery become sustainable. With the current institutions it wouldn't work, that's why we need to change 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 Aug 29th, 2012 at 06:11:54 AM EST
[ Parent ]
They don't need to spend mostly on imported goods. Spending even a quarter on imported goods would suffice. Which they will, because the share of imports in goods produced for local consumption usually amounts to a quarter to a third of the total price.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Aug 29th, 2012 at 06:46:36 AM EST
[ Parent ]
Neither do we want to turn the periphery into a massive Mezzogiorno.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Wed Sep 5th, 2012 at 10:14:20 AM EST
[ Parent ]
Dash it, will you people stop making me look up words I don't know and learning about things?


-----
sapere aude
by Number 6 on Fri Sep 7th, 2012 at 10:49:38 AM EST
[ Parent ]
You are indeed correct. It's not possible to have adjustment through falling nominal wages in the periphery. Such an adjustment might take decades. German wages must rise. My proposal doesn't include a mechanism which will create such an outcome. But it would buy time for some other unspecified mechanism which would increase German wages.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Wed Sep 5th, 2012 at 10:11:14 AM EST
[ Parent ]

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