Tags: Blinder | Germany | Eurozone | Crisis

Alan Blinder: Blame Germany for Eurozone Crisis

Wednesday, 14 Dec 2011 07:48 AM

Economist Alan Blinder says the villain in the eurozone crisis is self-evident — Germany's productivity and currency smarts.

"If we were talking about China, at this point we would accuse the Chinese of manipulating their currency to gain an 'unfair' trade advantage," Blinder writes in The Wall Street Journal. "But, of course, Germany has not manipulated anything."

"It has acquired a seriously undervalued currency by locking into fixed exchange rates with Greece, Spain, Italy and the others."

"When it comes to productivity, Germany has simply pulled away from the pack," says Blinder. "Partly because of thorough-going labor-market reforms in the last decade, and partly because it's, well, Germany, Europe's powerhouse economy has achieved vastly higher productivity growth than its euro partners."

Since 2000, German unit labor costs have risen about 20-to-30 percent less than unit labor costs in the other euro countries, Blinder notes.

"That gap has left Germany with a large intra-Europe trade surplus while most other countries run deficits," he observes.

In the latest summit agreement, Blinder notes that all 17 euro-zone countries, plus several others, pledged to pursue fiscal discipline — with tighter enforcement than previously, an agreement that is more about forestalling future crises than curing the present one.

“And fiscal austerity all over Europe, if it comes, will deepen the recession,” says Blinder. “So we hold our breath and await salvation from the European Central Bank (ECB) in the form of potentially massive bond purchases.”

The New York Times reports that the deal made in Brussels to reformulate the rules of the eurozone has probably saved the shared currency for now – but there may be less to it than meets the eye.

At least four major issues still need to be resolved: how much money is needed to protect Italy now from speculative attack; whether banks will stumble because of the crisis; the isolation of Britain, which does not belong to the eurozone; and not least, whether the Brussels cure, prescribed by Germany, fits the disease.

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Economist Alan Blinder says the villain in the eurozone crisis is self-evident Germany's productivity and currency smarts. If we were talking about China, at this point we would accuse the Chinese of manipulating their currency to gain an 'unfair' trade advantage, ...
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2011-48-14
Wednesday, 14 Dec 2011 07:48 AM
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