Saturday, February 5, 2011

Saving the Euro, Chap. 6

The good news is that France and Germany seem to be cooperating again. The bad news is that many other countries, starting with Belgium, which doesn't even have a government, aren't happy about it. This is what passes for "coordination" in the Eurozone. The details of the plan are still vague, but one thing is clear to Yves Leterme, the interim Belgian PM: the Germans want wage-indexing to be verboten, whereas wage-indexing is seen by a number of countries as the key to social peace.

It's rather interesting that the Germans should be making such a fuss about wage indexing. Indexing, after all, is to inflation, and we've been hearing for years that the Germans are so wary of inflation that they want it constitutionally outlawed and won't tolerate even the slightest wavering by the ECB. But it may also have become apparent to some in Berlin that one way out of the monumental debt overhang is to inflate it away. The "inflation tax" is relatively painless (to all but those living on a fixed income) and serves to spread the losses from bond holders to the population at large. So there is something suspect about the sudden German interest in doing away with wage indexing. Then, too, abolishing wage indexing helps to make inflation as politically unpalatable in other countries as it is in Germany. So it tends to enforce economic discipline.

There is also talk of new authority for market interventions by monetary authorities. That, too, may be related to the desire to keep creditors solvent and minimize their losses. More to come soon, I'm sure.