The Golden Rule Reinterpreted
Peter Schiff
In an April speech in Berlin, Dr. Andreas Dombret, a member of the
Executive Board of the Deutsche Bundesbank (the German central bank),
offered a startlingly frank assessment of the current problems in
Europe. Although his comments were meant to apply to the tensions and
imbalances that exist between the northern and southern tier of the
17-member eurozone, they shed inadvertent light on the broader global
economy.
...Exchange rate movements are usually an important channel through
which unsustainable current account positions are corrected....In a
monetary union, however, this is obviously no longer an option. Spain no
longer has a peseta to devalue; Germany no longer has a deutsche mark
to revalue. Other things must therefore give instead: prices, wages,
employment and output.
The question now is which countries have to shoulder the adjustment
burden. Naturally, this is where opinions start to differ. The German
position could be described as follows: the deficit countries must
adjust. They must address their structural problems, reduce domestic
demand, become more competitive and increase their exports.
....
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