4 ms·

The general idea is that Germany, since 2000 or so, did what is essentially an internal devaluation, by freezing salaries. This only works because Germany was t

by cdavid 14y ago

The general idea is that Germany, since 2000 or so, did what is essentially an internal devaluation, by freezing salaries. This only works because Germany was the only big economy within the Eurozone to follow this policy. Note that GDP increase was not especially high in Germany compared to other countries with a similar size within the Euro (e.g. France did better in the 1999-2011 period: http://fatasmihov.blogspot.co.uk/2011/12/internal-devaluation-german-style.html http://fatasmihov.blogspot.co.uk/2011/12/internal-devaluatio...). This policy cannot possibly work if other countries follow it within the Euro zone.

Tichy 14y ago
What does that have to do with the Euro? And why can such a policy not work if "other countries follow it within the Euro" zone? Also I wasn't aware that the government determines the salaries here in Germany. You are aware that the cold war is over and capitalism won, even here in Germany? We don't have a communist/socialist regime that can simply set salaries. Although the government can of course affect salaries by raising taxes (less net salary for everyone).
- cdavid 14y ago
  If everybody decreases their labour cost everything else being equal, then obviously you don't get a competitive advantage from it. You just made everyone poorer. See also http://seekerblog.com/2012/01/17/euro-crisis-german-unit-labor-cost-repression-is-the-primary-cause-of-periphery-stress/ http://seekerblog.com/2012/01/17/euro-crisis-german-unit-lab... for the same line of arguments. Germany essentially gained market shares at the expense of other eurozone countries (0-sum game) instead of actual increases in productivity (which is not a 0-sum game). As far as pressure for decreasing labour cost, this is pretty much uncontroversial. I did not say that Germany had a gvt authority setting salaries, but various factors such a pressure from high unemployment in the early 2000, and lower-than-eurozone inflation helped it (see e.g. http://www.voxeu.org/article/how-restore-competitiveness-eu http://www.voxeu.org/article/how-restore-competitiveness-eu - even though that article argues something closer to the opposite of what I am arguing here).

by cdavid 14y ago

Tichy 14y ago

What does that have to do with the Euro? And why can such a policy not work if "other countries follow it within the Euro" zone? Also I wasn't aware that the government determines the salaries here in Germany. You are aware that the cold war is over and capitalism won, even here in Germany? We don't have a communist/socialist regime that can simply set salaries. Although the government can of course affect salaries by raising taxes (less net salary for everyone).

cdavid 14y ago
If everybody decreases their labour cost everything else being equal, then obviously you don't get a competitive advantage from it. You just made everyone poorer. See also http://seekerblog.com/2012/01/17/euro-crisis-german-unit-labor-cost-repression-is-the-primary-cause-of-periphery-stress/ http://seekerblog.com/2012/01/17/euro-crisis-german-unit-lab... for the same line of arguments. Germany essentially gained market shares at the expense of other eurozone countries (0-sum game) instead of actual increases in productivity (which is not a 0-sum game). As far as pressure for decreasing labour cost, this is pretty much uncontroversial. I did not say that Germany had a gvt authority setting salaries, but various factors such a pressure from high unemployment in the early 2000, and lower-than-eurozone inflation helped it (see e.g. http://www.voxeu.org/article/how-restore-competitiveness-eu http://www.voxeu.org/article/how-restore-competitiveness-eu - even though that article argues something closer to the opposite of what I am arguing here).