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the problems of trade surplus and defiicits are internal to the eurozone

Some countries like Portugal have had a trade deficit for the last 60 years. That predates EZone and EU membership.
Anyways, jobs in the South are lost to China and the emerging economies not to the North.
The simple fact of the matter is that countries in the South have priced themselves out of low-cost manufacturing without managing the transition to high value added production. That is a structural problem that won't be solved by exiting EZone/EU. That problem cannot be solved by monetary policy.
by The European on Mon Mar 11th, 2013 at 07:31:29 AM EST
[ Parent ]
Some countries like Portugal have had a trade deficit for the last 60 years. That predates EZone and EU membership.
First there was the Bretton Woods gold standard, then there was the European Monetary System, then there was the Exchange Rate Mechanisms ERM I and ERM II. Throughout, Portugal ended up devaluing its currency. If there hadn't been a decades-long policy of fixed exchange rates, maybe Portugal might have had a gradual devaluing of the currency (not a periodic crisis) and a much smaller trade deficit (still a deficit, but within statistical error of zero).

Trying to keep your currency overvalued will produce the trade deficit, and then the devaluation crisis. An overvalued currency, however, is great for the local elite to take their rentier income out of the country.


I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS

by Migeru (migeru at eurotrib dot com) on Mon Mar 11th, 2013 at 08:00:12 AM EST
[ Parent ]
First there was the Bretton Woods gold standard, ...

First there was the Salazar dictatorship (Franco dictatorship in Spain) which pampered its domestic industry and made it noncompetitive. These traditional structures together with an over reliance on real estate speculation is what's wrong with these economies.
by The European on Mon Mar 11th, 2013 at 08:26:05 AM EST
[ Parent ]
Then why did France devalue serially, just as Portugal did?

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Mon Mar 11th, 2013 at 08:29:12 AM EST
[ Parent ]
The simple fact of the matter is that countries in the South have priced themselves out of low-cost manufacturing without managing the transition to high value added production. That is a structural problem that won't be solved by exiting EZone/EU. That problem cannot be solved by monetary policy.

It must be solved by fiscal policy, and it can only be solved by fiscal policy if monetary policy doesn't work against it.

The EU allows no industrial policy, no independent fiscal policy, and has a monetary policy conducive to deflation, depression and unemployment.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS

by Migeru (migeru at eurotrib dot com) on Mon Mar 11th, 2013 at 08:01:52 AM EST
[ Parent ]
The European:
That is a structural problem that won't be solved by exiting EZone/EU

how can it be solved, in your opinion?

keynesian job creation? government investment of citizens' taxes to provide employment and teach skills to make them productive?

whose fault is it they don't get smart like the germans and invent more saleable stuff for the world economy, or price their labour cheaper than asia's?

if we are in a painful transition period between old and new capitalism, what is the goal the suffering is for?

'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 Mon Mar 11th, 2013 at 10:04:42 AM EST
[ Parent ]
how can it be solved, in your opinion?

The Andrew Mellon way:

liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate... it will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people.


I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Mon Mar 11th, 2013 at 10:15:12 AM EST
[ Parent ]
whose fault is it they don't get smart like the germansBavarians and invent more saleable stuff for the world economy, or price their labour cheaper than asia's?
Fixed that for you
Edmund Stoiber once caused something of an uproar when he said "unfortunately, not everyone in Germany is as intelligent as in Bavaria".
(today's Newsroom)

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Mon Mar 11th, 2013 at 11:23:36 AM EST
[ Parent ]
Anyways, jobs in the South are lost to China and the emerging economies not to the North.

Because of the overvalued exchange rate relative to where it would be if the south did not have to subsidize German currency policy.

The simple fact of the matter is that countries in the South have priced themselves out of low-cost manufacturing without managing the transition to high value added production. That is a structural problem that won't be solved by exiting EZone/EU. That problem cannot be solved by monetary policy.

The simple fact of the matter is that "structural adjustment" is making that problem worse, not better.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Mar 11th, 2013 at 04:12:00 PM EST
[ Parent ]

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