Europe must drop the euro, Germany abandon mercantilism

UPI ^ | 10/20/2014 | Peter Moricici

[EBH]

Europe faces yet another recession, and the prospect is shaking global financial markets. To eliminate the persistent threat of collapse, Europe must drop the euro, and Germany must abandon mercantilism. When the euro was adopted in 1999, domestic prices -- the face values for bonds and loans -- and bank accounts were translated into euros according to prevailing exchange rates for national currencies at the time.

Initially, the single currency posed few significant problems. Over time, however, differences in labor market policies and geographic conditions that are difficult for governments to alter caused productivity to grow more rapidly in Germany and other northern economies. Also, Germany and northern states pursued mercantilist, export-driven growth strategies.

Prices for many goods made in Italy and other southern economies became too high to be competitive in the north. Those countries imported more than they exported and financed the resulting trade deficits by borrowing from the north.

In Spain, a property boom permitted homeowners to run up large mortgages, and banks borrowed heavily from the north to finance those. In Italy and Greece, governments spent and borrowed heavily through bond financing to prop up employment.

In the wake of the global financial crisis, private borrowers and governments could not pay their debts.

[elcid1970]

How dare those Germans produce & export large quantities of high quality goods!

Now....Germany doesn’t subsidize their export industries, do they?

[RetiredTexasVet]

Is this the point in time where the Socialists bring out the guns and mutate into full fledged Communists?

[jonno]

Germany and northern states pursued mercantilist, export-driven growth strategies

If I understand the author, the problem is that Germany will not abandon austerity measures; but rather, should pursue buying more from it's southern neighbors. Do I have this right?

[Mariner]

They want their own currency to debase so they can continue to borrow, but repay with ever diminishing value.

That's the ONLY change breaking up the Euro will have, other than to encourage even more slovenly behavior by the Med countries.

Hey, it's their country. Let 'em melt it if they want to.

[technically right]

As a matter of fact they do, particularly when it comes to the cost of electricity. The German’s idiodic renewable energy policies have driven the retail cost of electricity extremely high. This has threatened to put their heavy industries, the ones that export, in an uncompetitive position visa vis the US and others. So the German government has kept the cost of electricity for heavy industry in the 12 to 14 cents per kWh range while shifting the cost over to the residential customer class. The result is that residential rates are over 30 cents per kWh. Yep that’s right. 30 CENTS!