Sunday, May 1, 2011

Euro and Germany

Floyd Norris examines the widespread belief that the the big winner from the introduction of Euro has been Germany. He points to an ECB study which finds that since its introduction in 1999, Germany has gained competitiveness, not only against other major industrial nations but against all other members of the euro zone.



The study also finds that over the same period, Germany’s balance of payments has gone from a small deficit to a strong surplus, but in the euro zone as a whole the balance of payments position has deteriorated slightly. Norris writes,

"With the exception of Germany, each of the countries shown has lost competitiveness because unit labor costs have risen more rapidly in those countries. Absent the euro, many of the countries probably would have devalued their national currencies, but that is not possible as long as they remain in the euro zone."


I have already blogged about how decline in competitiveness has played an important contributor to the problems of countries like Portugal and Greece.

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