Friday, January 31, 2014

German reform

It's interesting to note that Germany, where Angela Merkel and the Right won a smashing re-election victory but not quite enough to rule without a Grand Coalition, is the one country that has managed a reform that might actually offer a bit of relief to its neighbors--but only a bit:
But not all is bad. If you look at the domestic agenda of the new government, it becomes clear that there will be some significant help towards the rebalancing of the Eurozone. It is, however, yet another sign of the systematic misunderstanding of the Eurozone crisis that the positive European impact of these domestic polices are largely left unmentioned. It is therefore worth pointing this out.
The introduction of Germany’s first statutory minimum wage of 8.50 Euro per hour is likely to have a significant macroeconomic impact and help address Germany’s chronic shortage of domestic demand. According to statistics published by DIE ZEIT, the introduction of the minimum wage will result in a pay rise for almost 7 million German workers. This means 32.2% of workers in former Eastern Germany and 18.0% in the former West will see a pay rise as a result of this policy.
The lesson: policy is not simply a matter of political will; there are real economic constraints. Germany's relative economic success weakens the constraints, while the advent of a new coalition pushed the "political will" component slightly to the left. This is not nearly the stimulus Europe needs, but it should help a little.

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