In an opinion piece by Marin Wolf in today’s Financial Times titled, “The Eurozone’s Next decade will be tough,” Wolf raises many of the issues we have discussed in Notes From Underground during the past month. He addresses many relevant issues that threaten the structure of the European Union. Many of the points he raises were similar to issues the late Rudy Dornbusch raised in the Sept./Oct. 1996 issue of Foreign Affairs. When an economic entity has rigid wages and little labor mobility, the only thing it has to give is the currency. However, when a country like Greece does not have currency flexibility to correct imbalances, it finds itself under severe stress. The same problem exists for all the peripheral European economies (PIIGS). Wolf makes the point very well in the initial paragraph:
But if the exchange rate cannot adjust,something else must instead.That “something else” is the economies of the peripheral Eurozone member countries.They are locked into competitive disinflation against Germany,the world’s foremost exporter of very high quality manufactures.I wish them luck.
We cannot have said this better. The result is that the PIIGS are going to have to force wages lower to regain some traction against the economic machine of Germany. With Spain’s unemployment at 19%+, and Greece struggling–and both led by socialist governments–exactly how are wages going to be squeezed enough to regain some sense of competitive reality?
We are offering a solution, though it is certainly in the realm of insanity. Germany should leave the EU and bring back the D-Mark, thus allowing the rest of the EU to devalue en masse against the GERMAN JUGGERNAUT. What would you expect from someone who believes that 2+2=5?
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