ECB and Inflation

[The Minsky Moment]

So like Burkina Faso, Myanmar and Peru, say?   

Why not?  If Burkina Fasoenes start producing high quality luxury automobiles at a half the price Germans do, they're fucked.

You're right Burkina Faso would be fucked in that odd hypothetical, since having made so much effort making luxury autos, they have no domestic market to sell to, nor anything close to a proper infrastructure for export.

Especially since as they are landlocked, they have no ports.   

[Admiral Yi]

Yet you previously mentioned the Czech Republic.

[Iormlund]

Huh?

The Czechs are not landlocked. They have access to the biggest market in the world, as well as all the major ports in Europe.

[Admiral Yi]

I have generally understood landlocked to be a strictly geographic term.

Similar to the Czech Republic, I doubt Burkina Faso is surrounded by countries that prohibit it transshipment of good.

However, this is all very tangential to the original issue, which is the appropriate German wage level. 

[The Minsky Moment]

I have generally understood landlocked to be a strictly geographic term.

Similar to the Czech Republic, I doubt Burkina Faso is surrounded by countries that prohibit it transshipment of good.

However, this is all very tangential to the original issue, which is the appropriate German wage level.

They don't prohibit but there isn't a highly developed multi-modal transport infrastructure, a single market with predictable rules, relatively corruption free bureaucracy,  etc.

It's not an apples to apples comparison b/c fundamentally at different stages of development.

[Sheilbh]

In fairness to Germany it could be argued that their ULC were improperly elevated by unification; the data seem to support this because there is a big increase in German ULC in 1991-1993.   The need to squeeze that out IIRC was cited as justification for the Schroeder reforms.  But 25 years out it shouldn't be such a significant influence anymore.

That makes me wonder how much of what Germany achieved and the model that's talked about of them taking their medicine through wage restraint and Hartz IV is applicable outside of Germany? How much is a consequence of reunification?

[Syt]

If the question is if there's still differences between Germany West and East - yes, there are.

E.g. 2013 GDP/capita, and productivity/capita:

[Zanza]

That makes me wonder how much of what Germany achieved and the model that's talked about of them taking their medicine through wage restraint and Hartz IV is applicable outside of Germany? How much is a consequence of reunification?

Germany was the sick man of Europe at the end of the 1990s and early 2000s. One reason was over-regulation, another was the massive disruptions in the East German economy from reunification and a third was arguably that Germany entered the Euro at an uncompetitive rate, especially for the depressed regions in Eastern Germany and the Ruhr Area. Adjustment through internal deflation together with Germany's uniquely export-oriented industry made the development of the last 12-15 years possible. It's not a model that can really be emulated anywhere else as it required some unique factors such as strong growth and inflation in the rest of the Euro area, Germany's industrial structure with lots of mid-sized world champion exporters and the corporatist-unionist model that made the institutional wage restraint possible in the first place. Without consumers elsewhere, Germany would be in the doldrums. It might (have?) work(ed?) for Northern Italy as they have a similar structure, but it wouldn't work for Greece. They need to find another way to make their economy grow again. It won't be through exporting machinery to China...

[Zanza]

For me the biggest risk is political. At the minute the Euro is seen as a single currency in large part because it's seen as irreversible.

That's Merkel's core message throughout the crisis. She'll likely do whatever it takes as well. In the last minute as usual.

If, as everyone expects, outside of the Euro at some point the Greek economy starts to recover quite well (I'd guess within 12-18 months they'd have one hell of a rebound) then doesn't a Eurozone exit look more of a positive prospect to Iberian countries or Ireland, or France, or Italy.

Not sure if everyone expects that. I have read very pessimistic takes as well which expect hyperinflation and even more economic woes.

I think you're probably right Zanza that we'll eventually - by July? - move to a situation where Greece can default within the Eurozone.

Default and staying in the Euro might be the best or worst of all choices. Not sure.

[Sheilbh]

That's Merkel's core message throughout the crisis. She'll likely do whatever it takes as well. In the last minute as usual.

Quite. I mean Schaeuble was pro-Grexit in 2012, it's hardly a surprise how he is now. As I say at least one senior Greek minister said their only friend left in Europe is Merkel.

Not sure if everyone expects that. I have read very pessimistic takes as well which expect hyperinflation and even more economic woes.

There''ll be inflation for sure, I imagine it'll be higher than would be tolerable in Germany but I mean Greece had inflation over 20% in the 90s. I think the bigger risk is that Greece gets sucked into the sort of Latin American cycle politically and economically. Which would be difficult for the EU to deal with.

Default and staying in the Euro might be the best or worst of all choices. Not sure.

It was Martin Wolf's suggestion in 2010. Several US states have gone bankrupt without calling the dollar into question. Why should it be any different in the Eurozone.

[grumbler]

...Several US states have gone bankrupt without calling the dollar into question. Why should it be any different in the Eurozone.

Which US states have gone bankrupt?  I was under the impression that there was no mechanism by which they could do so, and that is why Congress was looking to create such a mechanism a few years ago.

[Sheilbh]

Really? I thought Michigan and New York had or was that just the cities?

So what would happen if a state were effectively insolvent and neede to default?

[Admiral Yi]

Really? I thought Michigan and New York had or was that just the cities?

So what would happen if a state were effectively insolvent and neede to default?

I believe only Arkansas has ever declared bankruptcy among the states.  A few cities.

[Zanza]

Quite. I mean Schaeuble was pro-Grexit in 2012, it's hardly a surprise how he is now. As I say at least one senior Greek minister said their only friend left in Europe is Merkel.

I don't think Schäuble is in favor of Grexit. He is member of the old guard of convinced European federalists in Germany. It's a bit of a good cop, bad cop act by Schäuble and Merkel.

It was Martin Wolf's suggestion in 2010. Several US states have gone bankrupt without calling the dollar into question. Why should it be any different in the Eurozone.

Let's see.

[grumbler]

Really? I thought Michigan and New York had or was that just the cities?

So what would happen if a state were effectively insolvent and neede to default?

I believe only Arkansas has ever declared bankruptcy among the states.  A few cities.

Did Arkansas actually declare bankruptcy?  With whom did they file?  I know cities can file for bankruptcy; they aren't in any way sovereign.