August 23, 2017

Though benefitting from the Euro, the weaker Euro-nations still pay quite a lot for Germany’s export advantages.

Sir, Paul Clifton writes about the advantages provided to German exports by the fact that other countries help to keep the Euro value down "The euro gives Germany a permanent cost advantage" August 23. That, which is entirely correct, should also have us refer to the disadvantages for those other.

In November 1998, just before the launch of the Euro, in an Op-Ed titled “Burning the bridges in Europe” I wrote: “The possibility that the European countries will subordinate their political desires to the whims of a common Central Bank that may be theirs but really isn’t, is not a certainty. Exchange rates, while not perfect, are escape valves. By eliminating this valve, European countries must make their economic adjustments in real terms. This makes these adjustments much more explosive. High unemployment will not be confronted with a devaluation of the currency, which reduces the real value of salaries in an indirect manner, but rather with a direct and open reduction of salaries or with an increase of emigration to areas offering better possibilities.”

And in November 2009, in a letter to you I asked about “what it would have looked like if for instance Greece still had the Drachma and Germany the Deutsche Mark… clearly Greece would be able to devalue and use that politically more friendly approach of being able to inflate yourself out of the problems, instead of having to impose Germanic discipline on their citizens.”