Tuesday, May 16, 2017

Merkel and Macron - EU, two countries or more!?

If Le Pen gets in then no one said they didnt try and delay and delay....


"Since the crises, these cost divergences have ceased to grow, yet not reversed. This means that if domestic demand in the French or Italian economies were to be strong enough to eliminate that part of unemployment due to deficient demand, their current accounts would go into significant deficit. If they are also to run balanced fiscal positions, their private sectors must also run substantial financial deficits (excesses of spending over income). But the French and Italian private sectors have run persistent surpluses, even at low interest rates. Thus substantial fiscal tightening is likely to cause significant domestic slowdowns. Germany’s proposed solution to divergences of competitiveness is for everybody to follow its own model. It has succeeded: in 2016, all members of the eurozone, bar France, ran a current account surplus. The eurozone's current account shifted from a deficit of 1.2 per cent of gross domestic product in 2008 to a surplus of 3.4 per cent in 2016. If France is driven into prolonged competitive deflation, Marine Le Pen might become president next time. Mr Macron must ask Angela Merkel whether the German chancellor is willing to risk this. Reform in France is essential. So is development of risk-sharing institutions. But the eurozone also needs a big jump in relative German wages. Will that happen? I fear not."



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