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That is in fact the neoliberal doctrine on the question, and is implicitly the German position : that the variable that must adjust is wages, in a downward direction for deficit countries.

There are a number of problems with that :

  • the moral problem that a mercantilist power is plundering the living standards of wage-earners in weaker countries (and that within a Union that purports to seek the improvement of living standards of all its members);

  • the "political" problem that the adjustment required is so brutal that those weaker countries may become impossible to govern (strikes, riots, instability), with uncertainty as to the final result (fascism, or, god help us, xtreme-left terra?);

  • the practical problem that wages don't just slide quickly and obediently down to provide a magic unicorn solution, as in the neolibs' dream world;

  • the "game" problem that Germany's reaction to increased competitiveness in partner countries (that hugely includes France) would be to hone its own competitiveness -- in other words, a downward spiral aka race to the bottom would be created, the bottom being somewhere adjacent to Chinese wages and living standards.

As Jake says, the only acceptable wage adjustment would be a rise in Germany.
by afew (afew(a in a circle)eurotrib_dot_com) on Wed Aug 29th, 2012 at 02:11:15 AM EST
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