Six months ago I revealed my plan to resolve the Eurozone crisis: all German workers would be given a 30% wage increase by their employers.  This would, I said, “at a stroke, level the competitiveness playing field within the Eurozone while, at the same time, putting lots of new Euros into the hands of Germans to spend on Greek holidays, Spanish wine and Italian shoes.”

Bizarrely, I have seen no evidence that my plan has been taken up by European leaders.  My phone has not exactly been hopping with calls from Berlin and Paris, expressing gratitude for my brilliant insight into how to solve the major economic crisis of our times.  Sarkozy, at least, will now have plenty of time to repent for his lack of action.

But at least one solid citizen (of the USA as it happens) has taken up the cudgels and written a letter to the Financial Times  (3rd May) promoting the very policy I suggested here.  Take a bow, Raul Elizalde, of Path Financial, Sarasota, Florida:

It’s time to recognise that Germany reaped enormous gains from the creation of the common currency. If it is really committed to the eurozone’s survival, it will have to give back some of those gains, not only by providing bailout money or booking private sector losses, as it is doing, but also by surrendering some of its relative competitiveness. The most direct way is by running a higher inflation than the periphery ……. recent German unions’ demands for higher wages present just the right opportunity. Conceding higher pay could ease some built-up political pressures brought about by austerity, reward the long contribution to competitiveness made by German workers, and make the periphery’s relative adjustment easier to achieve.

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It’s simple really.  As John Maudlin says: “… the money to solve the crisis does not exist. The only way to find it is for the ECB to print money and print in size, enough to lower the value of the euro and make exports cheaper (which gives southern Europe a chance to grow out of its problems).”

That’s step one.  But there would remain the problem of the relative uncompetitiveness of the peripheral countries, especially Greece.  So here is my cunning plan, worthy of Baldrick at his best: all German workers would be required to be given a 30% wage increase by their employers.  (Same would happen in quasi-German satellites such as Finland, Austria, Netherlands.)

This would, at a stroke, level the competitiveness playing field within the Eurozone while, at the same time, putting lots of new Euros into the hands of Germans to spend on Greek holidays, Spanish wine and Italian shoes.

Todays Financial Times has an interesting comment piece from Bill Clinton’s former Treasury Secretary, Lawrence Summers.  Here is a small extract.

 ….no country can be expected to generate huge primary surpluses for long periods  for the benefit of foreign creditors. Meeting debt burdens at rates currently  charged by the official sector for credit – let alone the private sector – would  involve burdens on Greece, Ireland and Portugal comparable to the reparations’ burdens Keynes warned about in The Economic Consequences of the Peace ….  The twin realities that Greece, Italy and Ireland need debt relief and that the  creditors have only limited capacity to take immediate losses, mean that all  approaches require increased efforts from the European centre.

Given the comparison used by Summers, it’s ironic that it is the Germans that are in the vanguard of attempts to avoid sensible burden-sharing among the wealthier Eurozone nations.  Current ECB policy is trying to impose a “Carthaginian Peace” on the Eurozone, which will have severe consequences for all, not just the bailed-out countries.

As an aside, I wonder does German Chancellor Angela Merkel (a highly-qualified physicist) agree with Summers’ controversial remarks in a 2005 speech where he suggested that the under-representation of women in science and engineering could be due to a “different availability of aptitude at the high end,” and less to patterns of discrimination and socialization?  His remarks are believed to have contributed to his resigning his position as president of Harvard University the following year.

The most recent post on the blog of BBC Newsnight’s economics editor Paul Mason is called “Timetable of the euro-showdown” and is very informative, albeit slightly worrying.

 As an aside, it includes this quote: “So the difference in this phase of the crisis is that what is driving the problem is not economic collapse and abject political mis-accounting (as per Greece) nor the collapse of a kleptocratic banking and property elite (as per Ireland), but collapsing confidence in the Eurozone’s authorities.”

Interesting to see Auntie Beeb’s man describing what we had as a kleptocracy.