Experts urge higher demand, wages in Greek response
By Klaus Lauer of ReutersBERLIN - Europe can only tackle its debt and deficit problems if it accompanies the euro rescue package with growth measures including wage rises in Germany, 160 academics said in an open letter on the Greek crisis on Tuesday.
The group of mostly European economists said the $US1 trillion emergency package to stabilise the euro was "necessary but also long overdue and, most importantly, it is not enough on its own".
The letter, an initiative of Philip Arestis of Cambridge and Gustav Adolf Horn of IMK research institute, said Europe's belated policy response to Greece had been "driven by volatile market sentiments, populist politicians and a media that all too often exhibits fundamental ignorance about the issues".
"This has dramatically raised the costs and risks of resolving the crisis," read their letter.
Lamenting that spending cuts imposed on Greece "will only depress incomes, output and employment further, even as interest rates are driven up to crippling levels", the group said it was "profoundly the wrong course for Europe as a whole".
Listing the causes of Greece's fiscal woes as its inability to generate tax revenue, declining competitiveness due to rising labour costs and prices, external shock to the financial sector and high interest rates, the group said all but the first problems had a "strong European dimension and call for European solutions".
"In particular, the loss of competitiveness by Greece ... is the mirror image of an increase in relative competitiveness by others, notably Germany, Austria and the Netherlands," the academics wrote.
Greeks not lazy
Rejecting the media depiction of "lazy" Greeks, arguing they work longer hours than Germans with hourly labour productivity that has risen more than twice as fast as Germany since the euro was introduced in 1999, the economists said at the root of the competitiveness problem was nominal wage and price setting.
Greek nominal unit labour costs have risen by more than 30 per cent since the start of European Monetary Union, the experts argued, while in Germany they rose just eight per cent, creating wage and price divergencies not sustainable within a monetary union.
"Wages and prices in Greece and other countries need to fall in relative terms, but they must increase faster in Germany, whose aggressive wage moderation policies are deflationary, dampen domestic demand, export unemployment and threaten to explode the monetary union," the open letter said.
"This is the only way to re-balance the euro area while avoiding the huge risk of a deflationary spiral," it said.
Warning of the risk of a domino affect, with Portugal most exposed, the academics said lending public money to Greece was "not charity" but "in the vital interest of all Europeans".
So was the need to "resolve the Greek crisis on the basis of rising incomes across the continent".
They called on the European Central Bank to help with fiscal consolidation and re-balancing, which "in the short run ... means committing to maintaining its base rates close to zero".
No comments:
Post a Comment