Read it at AlterNet
The export-obsessed Germans have created an economic race-to-the-bottom in which no one can win. But there's a better way.
German Economic Striving at the Expense of Workers and Neighbors Will Backfire
by Marshall Auerback
(h/t Kevin Fathi via email)
This is what will cause the Euro to go down in the forex imo.
ReplyDeletei got into this here in this post:
http://mikenormaneconomics.blogspot.com/2012/02/productivity-and-exchange-rates.html
In a global system of free floating currencies, seems that the country that gives the best deal to it's workers has the strengthening currency.
Logic: if terms of labor in each nation were exactly the same, and never changed, the exchange rate would be at permanent equilibrium (the workers would be virtually "in the same nation").
Mike lived in Europe and used to talk on his show about how well the workers had it in Europe: Month of August off, many other days off, 36 hour work week, free healthcare, etc... vs the US where we "work harder" for less "money" (tho not as bad a China).
Now if the policy makers in Europe start broadly attacking how well the workers have it over there, so far this is only going on in Greece and perhaps Ireland (5%ish of Europe economy peanuts) and the US can maintain the status quo (ie US doesnt join them in race to bottom) then the Euro should start to fall vs USD.
If they roll back vacations, make workers start paying for healthcare, increase to 40 hour work week, etc...if you see these types of things BROADLY applied, and the US remains status quo, then Euro should start to fall vs USD imo.
If this scenario develops seems like the only thing the Euro policymakers will be able to do if the Euro would weaken substantially past their comfort point would be to intervene and they dont seem to show a propensity to do this, although probably would do so if pushed.
Resp,
" In the period before the euro, they would devalue the Deutschmark so that they could increase the sales of their products to their neighbors. Once the Germans lost control of the exchange rate by signing up to the Economic and Monetary Union (EMU), they couldn’t perform this trick anymore. They had to manipulate other “cost” variables in order to sell goods cheaply. So starting in 2002, they focused on wage suppression and cutting into the social safety net for workers through something called the Hartz package of “welfare reforms,”
ReplyDeleteScrewing down on the workers causes the currency to fall...