2015 July 15 Wednesday
Productivity 70% Higher In Germany Than Greece
No need to work long hours when you get a lot done per hour.
Last year, German employees worked fewer hours than all their peers in the OECD’s 34 member states, although productivity as measured by GDP per hour worked was some 70% higher in Germany than in Greece.
Why are they in the same currency union? Here's an argument that German finance minister Dr. Wolfgang Schäuble and his allies intend to boot out some Euro members and shrink the size of the Euro zone to a level that would allow a close federal union of the remaining members. That seems plausible. Why? Because Portugal and Italy both have sovereign debt over 130% of GDP and Barry Eichengreen points out that rarely do governments run sustained large enough budget surpluses to pay down debts that large.
Greece is already in an economic depression on par with the US Great Depression in depth and the new deal with the Eurogroup is going to push the Greek economy deeper into a recession inside this depression (they were flat for a while). Their debt is going to go up. They won't meet the financial goals they have to meet to continue getting bail-out rounds. Grexit is delayed, not avoided.
What's needed: development of software and printing presses that would let Greece, Italy, Portugal, and likely a few other Euro states to go back to their own currency very rapidly. Each of these ejections from the Euro will likely be chaotic. They ought to be organized and fast so that economies can restart and possible grow.
By Randall Parker at 2015 July 15 04:28 PM
RP: " Here's an argument that German finance minister Dr. Wolfgang Schäuble and his allies intend to boot out some Euro members and shrink the size of the Euro zone to a level that would allow a close federal union of the remaining members. "
Let's assume for a moment that this step has been carried out and that only the more competitive members are left in the European Union. Then what? This would merely reset the game and launch a new iteration of the same process. The process is simple: 50 % of the German exports go to the European Union, and without a big trade surplus from that region Germany cannot survive because it does not have raw materials. Germany only wants to boot out the impoverished and very weak members of the EU from the union, but still wants to keep wealthier but slightly less competitive members in the EU, so that Germany can continue to extract trade surpluses from the richer countries that are weaker. If Greece had a lot of wealth leftover to lose, then Germany would have been very happy to let Greece remain a very inefficient member of the EU instead of booting it out of the EU. France and UK are more efficient than Greece, but they are still slightly less efficient than Germany and more importantly France and UK still have a lot of wealth leftover which allows them to trade deficits against Germany for a while, which is why Germany is happy: if France and UK were more competitive than Germany, then Germany would probably get out of the EU and impose tariffs against them. The lion's share of Germany's trade surplus in the European Union is extracted from France and UK: recently Germany has been running an annual trade surplus of $50 billion against France and $47 billion against UK, for a total of $97 billion per year. Since the GDP of Germany is $3.7 trillion, this means that the trade surplus of Germany against France and UK would be 2.6 % of its GDP. In fact, Germany will boot out Greece only after expropriating some of the national assets of Greece, as the Greek government recently agreed, to cover the debt that Greece owes to Germany: these assets of Greece will be sold under German supervision.
Why are they in the same currency union?
Because the EU project is much more than economics. What is the productivity level of blacks vs. whites in America? How many hundreds of billions does diversity and equality cost the U.S. economy per year? Just as Western leaders are flummoxed when confronted with the fundamentalism of ISIS, right-wingers and libertarians are flummoxed when confronted with the one-worlder, anti-nationalist, white-hating racism of the PC fundamentalism that controls their leaders. More than bread alone . . .
"rarely do governments run sustained large enough budget surpluses to pay down debts that large."
You don't need to run a surplus. Real growth of 1% plus inflation of 2% means, with a balanced budget, that debt/gdp goes down 3% a year, or 3.9 percentage points a year for debt/gdp of 130%. And growth of 1% and inflation of 2% are both historically low numbers.
The problem for Greece is tight money and austerity stops the economy from growing at all and keeps inflation in the -1 to 1% range.
Greece, Italy, and Portugal never defaulted or had serious debt issues before the Euro because they had ~2% real growth inspired by the loose money of ~4 to 6% inflation. You only need 7 years of that to cut debt/gdp in half.
Greece is making a big mistake not defaulting and leaving the Euro. Maybe they are trying to get one more bailout payment before doing so, hard to say.
Greece has a fertility rate of 1.34. Their workforce is going to shrink, shrinking GDP with it, and make the debt burden even bigger.
The best thing about Greece still being in the Euro: Its being made to privatize industries and lower regulatory barriers for creating businesses.