Wednesday, June 20, 2012

Differences In Productivity And Competitiveness

At root, the current crisis is the result of imbalances in the global economy, which in turn reflect differences in productivity and competitiveness.

To tackle Europe's problem therefore means tackling the competitiveness question. This can only be done in a number of ways: by a long and brutal process of austerity that reduces the cost base of the weaker nations; by Germany and the richer nations of the North eroding their competitive advantage by tolerating a higher rate of inflation than the nations of the South; by a permanent process of fiscal transfers that will probably exceed the assistance provided to the Länder of the old East Germany; or by countries seeking to generate an instant competitive boost through departure from the Euro.

As it stands at a crossroads, Europe has to choose one of these four routes, something it appears incapable or unwilling to do.

Sooner or later, a country like Greece will decide it cannot take the strain any longer and conclude there will be first-mover advantage in being the first country to leave the Euro, just as there was for the first country—Britain—to leave the gold standard.

Even The Guardian gets it.

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