Hello all,
My blog response is in this article I found rather interesting, located at this link: http://www.economist.com/opinion/displayStory.cfm?story_id=15663362&source=hptextfeature
Now it says here that before, Germany was lagging behind in the European economy due to high unemployment and slow growth, but how did this all change? Even in the world recession, Germany has managed to have high account surplus, while still exporting many goods to other countries. Now in the article, it says that Germany managed to hold down labor wages in 2001-08. This brought down the cost of labor, but it seems to me that there would be “less” labor after that, due to the demands of higher wages to pay for that labor. So labor cost may have been down, but that would still produce less because firms would not want to pay the higher prices for more labor.
With the recession, this low labor cost benefited Germany because other countries could outsource to it and increase the production in Germany, hence increasing the standard of living. It also says in the article that German’s success in the recession is hurting its other Euro neighbors. Germany was saving money while other counties like Greece in the Mediterranean were spending money like it was going out of style. This recession has rendered many counties in the EU with weak economies, with Germany being the country with the most capital it seems logical to help the other struggling economies linked in the EU by spending and investing to get them on their feet. It’s been said before, that in recessions a government must spend lots of money and in the recovery period must accumulate money and pay off bonds. I think that role is in Germany now.
As current leader in the EU market, Germany must put more priority to saving less and spending more in terms of investing stock to have more currency flow to the other countries. This will get the countries like France, Greece, and Italy more room to maneuver while they still try to lower their labor costs. It will be the road to recovery to ensure a strong European economy.
An interesting article that hints at one of the problems I see with the Euro as a currency. No one can dispute the obvious and innumerable benefits having a single currency has bestowed upon Europe. One has to wonder, though, about the medium-term efficiency of the Euro given that its sphere of influence is 16 sovereign countries, each with their own economic policy and agenda. That Germany is the ant to Europe's grasshopper is not due to overall Eurozone policy, but to Germany's individual economic policy. Extremely long-term it is possible that the sovereignty of the Eurozone nations may degrade in deference to ease of trade, much like states in America. This would require some serious policy changing and soul-searching on the part of the Euro nations. Between then and now, however, I believe the Eurozone will be especially prone to situations like this.
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