Tuesday, 2 April 2013

The devil is always in the detail

Back on 6th March I quoted Ambrose Evans-Pritchard - "An internal devaluation is achieved (under EMU) by forcing unemployment to such excruciating levels that it breaks the back of labour resistance to pay cuts. It is the polar opposite of a currency devaluation that spreads the pain" - to precis the Eurozone's approach to the crisis, to squeeze real wages whilst leaving the profits of firms and corporates intact. 

The Guardian reprints a piece that underlines Draghi's innate mendacity in letting this particular cat out of the bag; he recently presented a chart showing each Eurozone country's real output value (i.e. excluding inflation) against each's nominal (i.e. including inflation) wage growth. 

The point Draghi was making was that the blue countries (Germany & co) were 'balanced' whilst the naughty red Club Med countries had let wages outstrip productivity and therefore breaking the back of labour resistance to pay cuts was the answer. 

In fact this isn't the case.

1 comment:

Budgie said...

There are two ways to genuinely increase productivity: reduce pay; or work more efficiently. The Germans have done both, the clubmeds have done neither.

The main non-genuine way is for a country to deliberately devalue its currency. As in fact the UK is doing now. This is no longer an option for the EZ members which have to live with a euro largely controlled by the Germans.

The obvious option is for any clubmed to exit to their own currency, whence a devaluation would follow. But the euro has become a virility symbol and no politician wants to admit he hasn't got any.

In time of course it will all sort itself out, and the euro will be stronger than the dollar and much stronger than the pound (which will disappear anyway when we join the EZ). I don't like my prediction, but you have to follow the logic.