Is Germany to blame for the euro crisis?
All the alternatives to eurozone 'austerity' involve redistributing German wealth. If the blame for the euro crisis lies with Berlin, should they cough up more?
All the alternatives to eurozone ‘austerity’ involve redistributing more of Germany’s wealth to its neighbours. Giving the European Central Bank the power to act as lender of last resort to eurozone governments without limit will, via the new money created to do so, result in higher inflation in Germany. Schemes for debt mutualisation which propose to spread the debt of various eurozone countries among all members will be a boon for those with above average debt, like Greece, but less so for those with below average debt, like Germany.
Not surprisingly the Germans have been reluctant to embrace these schemes. Appeals to some shared European sense of identity have failed as this identity was a fiction in the first place. Another approach has been to mutter that Germany owes its neighbours because of the war. This approach has likewise failed as today’s Germans quite reasonably don’t feel the need to atone for what their grandfathers did.
But there is a more subtle, economically based argument that, partially at least, lays the blame for the euro crisis at Germany’s door. If this argument can be accepted then surely it is reasonable to expect Germany to cough up a bit?
The argument runs like this: with the assistance of Germany’s trade unions during the 2000s the Berlin government was able to hold down German wages. As a result German unit labour costs fell making German goods relatively cheaper than those produced elsewhere. As Philipp Bagus writes “Since the introduction of the Euro, Germany’s competitiveness, as measured by the indicator based on unit labor costs provided by the ECB, increased 13.7 percent from the time of the Euro’s introduction up until 2010. In the same period, Greece, Ireland, Spain, and Italy lost in competitiveness, 11.3, 9.1, 11.2, and 9.4 percent respectively”
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