Euro zone crisis: It’s Germany’s fault
The reigning narrative of Europe’s financial turmoil is that profligate European states, agglomerated all too offensively by a swine-referenced acronym, are forcing the continent’s wealthy, prudent northern countries to come to their rescue. Not so, according to two policy experts who spoke this week at a conference on the euro zone crisis at the University of Austin’s Lyndon B. Johnson School of Public Affairs.
They argue that labor reforms in Germany prevented the wages of manufacturing workers from rising after monetary union had been completed, making the country more competitive at the expense of its southern peers. Joerg Bibow, a professor of economics at Skidmore College, gives his view of events:
Germany’s wage trends have been the most important cause of the euro zone crisis. Those wage trends created an asymmetric shock that destabilized Europe.
This hollowing out of the rest of Europe at the expense of Germany’s workers and to the benefit of its prospering corporate sector only lasted so long because of the insatiable, debt-fueled demand of the American consumer, Bibow said.
Some market analysts have argued that the euro itself is a backdoor stimulus for Germany, because monetary union has kept the common currency much lower than the deutschmark would be if Germany’s trade surpluses had been accumulated outside the EMU.
Heiner Flassbeck, a former German government official who is currently a director at the United Nations Conference on Trade and Development, says the economic leg up goes a step further. The way he sees it, monetary union is effectively a commitment by various nations to having the same inflation rate over time. Yet while inflation in other European nations converged toward the European Central Bank’s 2 percent target, Germany’s dipped even further – in great part because wages were not allowed to rise in line with business productivity.
One country got it absolutely wrong. That country was not Greece, it was Germany. Due to German wage-cutting, Germany adopted a beggar-thy-neighbor export model.