I am grateful to Professor Peter Bofinger for alleviating some of the worries I had after reading his VoxEU paper. To be clear, his comment leaves no doubt that he: 1. fully endorses the “Crisis Consensus Narrative” that large (gross) capital flows are the real cause of the intra-Eurozone imbalances and subsequent Eurozone crisis; 2. agrees with me that German wage moderation (i.e. keeping nominal wage growth below labor productivity growth) dampened domestic demand and inflation in Germany, prompting the ECB to lower the interest rate for the Eurozone as a whole; and 3. views asymmetric policies of internal deregulation and labor market reform as harmful and accepts the importance of non-price competitiveness for export performance.
- Published: Wednesday, 20 January 2016 09:28
- Written by Peter Bofinger
- Published: Monday, 11 January 2016 15:17
- Written by Thorsten Hild
Servaas Storm, a senior lecturer of economcis, has critically analysed the focus on nominal unit labour costs (ULC) taken by some economists in explaining the crisis of the European Monetary Union (EMU). “German wage moderation in this story”, writes Storm in his analysis, is according to those economists, “(mostly) to blame for the weakening of Southern Europe’s cost competitiveness as well as the large capital flow from Germany to the increasingly indebted and vulnerable Eurozone periphery.” Storm doesn´t completely deny the role of German wage moderation, but in his point of view it bears only “part of the responsibility for bringing about the Eurozone crisis”. Storm rather criticises the “single-minded emphasis on the importance of relative unit labor cost competitiveness” as “misguided”. However, what is science if not reducing complexity to one crucial factor or at least some important factors? But this is not the main point I want to raise here. The main point I want to raise is on a possible misunderstanding of wage moderation by Storm. There are definitely more interesting arguments in Storm´s analyses to question, but the question on what wage moderation or wage restraint is really seems to me the most relevant.
- Published: Friday, 08 January 2016 21:00
- Written by Servaas Storm
- Published: Monday, 30 November 2015 15:02
- Written by Peter Bofinger
The EZ ‘consensus narrative’ argues the Crisis should not be thought of as a government debt crisis in its origin. Instead it regards large intra-EZ capital flows that emerged in the decade before the Crisis as the real culprit. This column argues that while the narrative is correct, it is also incomplete. With its focus on the deficit countries, it neglects the role of Germany, by far the largest member state, and its contribution to the imbalances in the years preceding the Crisis. A narrative that does not account for the effects of the German wage moderation is incomplete.