1. Stephan says

    This is silly. Note that a trade surplus is always matched by capital exports. Germany _lost_ capital because poeple thought to invest in Southern Europe is more profitable and bears no more risk. Now, according to this opinion, Germany is to pay with dear capital once again. The causality is “capital leaves -> wages are depressed” and “not wage depression -> capital leaves” as you suggest.

  2. Hugo Heden says

    > “I find this alternative theory a lot easier to understand…”

    MMT:ers could another point, which is pretty easy to understand too (for those who grok the terminology): The Eurozone has no currency issuer; at least none that adds net financial assets for currency users.

    (There is the ECB of course — but as Ed argued the other day it does not add net financial assets — it only shifts the composition of them between currency and bonds.)

    The Eurozone governments are currency users, much like the federal states in the U.S.

    The difference is that the federal states in the U.S are backed by a currency issuer that can actually add “net financial assets” for the currency users, by deficit spending.

    The Eurozone governments has no such backing. Currency user net financial assets remain constant (until a new Eurozone member is added).

    Of course, endogenous money issuance (loans create deposits — horizontal money creation) can support a growing economy (positive net savings desires) for a while. But it is not sustainable. At some point, debt-to-income-ratios — for whomever taking on the role as debtors — will reach unsustainable levels. Eventually, debt service will become an unbearable burden for debtors.

    All this is to be expected.

    Of course, constant deflation is a solution in theory. Probably won’t work in practise though.

    Lot’s of MMT parlance there, probably mumbo jumbo for most others?

  3. Marton says

    > If you believe this theory, you are going to have to explain what happened in 2000

    Well, the spendthrift Germans stayed just as spendthrift in the 2000s: budget deficits ran at an average of 2.5% in the 90s, and at the same level in the 00s. Real wages grew by 2% both before and after the Euro introduction. (NB: This is less than inflation…)

    The Eurozone periphery, however, had a binge of cheap credit thanks to low-yielding Euro-denominated debt. It expanded investment into housing, construction and welfare by having their banks finance themselves on Euro capital markets and extending credit to households and corporates. Corporates and governments raised salaries and made promises of lavish early retirement. For some mysterious reason after a handful of years, this started to lead to decreased competitiveness, negative trade balances and large primary budget deficits.

    1. sidelarge says

      Are you aware that the author is talking about TRADE deficit there?

      Mixing up government deficit with trade deficit is one of the most elementary mistakes that you should avoid before even thinking of talking about such issues.

Comments are closed.

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Accept Read More