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December 03, 2010


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Higher wages in Exportland. The German trade unions are actually having some success implementing this off their own bat - the IG-Metall/Gesamtmetall settlement this year was damn good if you're a German steelworker (or any other kind of German industrial worker, as it acts as a price leader for all the other sectors), and the last lot of figures show a big rise in German consumer spending.

It would be better for everyone if the adjustment burden was split between the surplus and deficit states; if there's the equivalent of a 20% exchange rate gap, there's no reason why the Germans shouldn't meet the Spaniards half-way. Also, if we stipulate that the adjustment must come entirely from internal devaluation, this implies that the adjustment must be deflationary overall. We end up in balance, but at a lower level of national income.

If we relax that constraint, however...

As far as extra-eurozone trade goes, it's worth remembering that nobody ever bought a BMW because it was the cheapest car on offer. German (and Dutch, Finnish, etc) products typically sell because you can't get some kind of recondite and wonderful machine tool anywhere else (Siemens, Rohde & Schwarz, etc), or else because they are at least perceived to be the best in class (Porsche, BMW) or perceived to offer good value for the (high) price (Volkswagen).

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