asterisk2a + problem + sticky-wages   1

Europe's Next Great Test: Competitiveness Is Lacking -
"The euro exchange rate is a tighter grip than the gold standard was," says Mr. Crafts.

Whether devaluation would work, as it did in the 1930s, would depend on how wages reacted. If a sliding currency set off a round of wage increases, as some economists think it would, it would yield no competitive advantage.

That would mean the only practical prospect is for economies to regain their competitiveness against Germany, which has been the low-inflation anchor of the euro, the hard way.

Unless the European Central Bank deliberately relaxed monetary policy to set off a round of inflation—very unlikely—the alternative is for Greece and the other uncompetitive southern economies to embark on wage cuts that pushes inflation lower than Germany's over many years.
EMU  eu  europe  euro  economics  gold  history  greece  spain  germany  italy  portugal  competitive  greatrecession  inflation  deflation  sticky-wages  problem  economy  competitiveness 
march 2010 by asterisk2a

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