Bailing Out the Eurozone
What are the four ways to solve the eurozone’s economic troubles?
- Saving the Euro, Option 1 of 4: Use mass unemployment in the south to depress wages and prices into competitiveness.
- Saving the Euro, Option 2 of 4: Increase inflation in Germany to reduce competitive edge over Europe’s south.
- Saving the Euro, Option 3 of 4: Change the Eurozone’s membership.
- Saving the Euro, Option 4 of 4: Give up on restoring Eurozone competitiveness and accept that it is a transfer union.
1. Continue with mass unemployment in Europe’s south, in order to depress wages and prices until the areas become competitive again.
2. Increase inflation in Germany, in order to get rid of an imbalance in competitiveness, which is not an attractive option for Germans.
3. Change the Eurozone’s membership.
4. Give up on restoring competitiveness in the Eurozone and accept that it is an indefinite transfer union.
5. The last option requires two things: for people in Europe’s north to send money south and for people in the south to accept the conditions imposed on them, which will limit the size of the transfer.
From Lunch with the FT: Sir Mervyn King by Martin Wolf, reflecting on suggestions by Sir Mervyn King, then outgoing Bank of England head. (Financial Times)