Competition in Wholesale/Retail Trade and the Price Level

This new report from the ECB provides an analysis of the links between market structures and regulations in the distribution sector and the overall price level.

9 replies on “Competition in Wholesale/Retail Trade and the Price Level”

This is a vitally important document and it may have an impact which it would not have had if issued by the Commission. Trichet mentioned it in the following terms in his valedictory address to the EP.

“Finally, in the context of our continuing analysis of the euro area economy, let me draw your attention to today’s release of the 2011 Structural Issues Report. This deals with structural features of distributive wholesale and retail trade and their impact on prices in the euro area. The distributive trade sectors are not only economically important in their own right, but also relevant to monetary policy. Ultimately, it is retailers who set the prices of most consumer goods and they are a key interface between producers and consumers. I very much ask you to take note of the report. It suggests ample scope for further improving effective competition and removal of unwarranted barriers to cross-border trade”.

It can be read against the background of the recent exclusive interview in Handelsblatt with the leader of the SDP, Steinmeier, calling for a renewed approach on the pattern of the initiatives launched by Delors two decades ago. This constructive and forward looking attitude by a personality who may become the Chancellor of Germany may be contrasted with the behaviour of the CDU/CSU/FDP coalition which shows every sign of having pushed the slow-release self-destruct button.

Though I expect the spread has narrowed somewhat in the last 18 months, Table A14 (pp 114, 115) should provide food for thought – if not motivation for analysis – for those advancing ‘internal devaluation’.

@ Paul Hunt

The main point about the report is that it should help bring home the fact that you cannot have a successful single currency without a fuly integrated single market. The first exists in the EZ, the second – unlike in the case of the US – does not. There has to be a change in this situation or the current commercial imbalances between the main EZ countries – notably Germany and France – will cause the euro to collapse.

Germany is the main culprit but far from being the only country responsible, all being expert in finding difficulties with regard to a fully liberalised market, environmental concerns being a very useful cover.

The link below from a French website shows the trend of Germany’s commercial balance over the past 50 years, the enormous increase since the advent of the euro hardly being accidental. As The Economist sagely
remarked some years ago, the German entrepreneurial class seems to have forgotten that the purpose of exports is, in the end, to pay for imports. Workers have to be left with sufficient of the economic cake to wish to import. The wage suppression under Schroeder, and subsequently Merkel/Steinmeier (he was her foreign minister) and now the CDU/CSU/FDP, combined with a botched social welfare reform, have prevented this from happening. Steinmeier seems to have had a change of heart, no doubt stung, both politically and otherwise, by the interventions of Die Linke during the Bundestag debate on the EFSF. The party is being outflanked by them.


We’ve been around the block on all of this a few times previously. Germany is caught in a strategic bind. On one side, its senior politicians and policy-makers are seeking to advance the strategic global economic positioning of the EU (or at least the core built around germany and like-minded countries) by exploiting a comparative advantage in high value, high knowledge content capital goods and high-end consumer durables. The squeeze on workers’ pay is a part of this effort.

On the other, it is probably more in its interests to secure the Euro Area as a solid monetary and fiscal base than it is for most other members. And, to add to the challenge, the Neocon banking and financial market fantasies and follies have infected and damaged the Rhineland model of capitalism that should support its global strategic endeavour. This infestion and damage have made shoring up the Euro Area a daunting financial and political challenge. Surplus funds that in the past would have been available for investment in Germany were lent foolishly around the periphery.

To complete this horrible cocktail, the desire of the CDU/CSU to retain power and to secure a sporting chance of re-election in 2013 is scuppering the ability to reconcile the two principal, and potentially conflicting, strategic objectives described above. So it’s a rehash of Willy Brandt’s ‘policy of small steps’ in completely different circumstances – circumstances that require some decisive action.

However, all of this is out of our hands and the over-riding ‘no regrets’ policy for Ireland should be to get our cost base back in line with our Euro Area partners. This report shows how much needs to be done in just one important sector.

But it seems to be far more fun to ignore this hard, grinding effort and shout about the follies of the ECB, burning bondholders, exiting the Euro – anything that might deflect attention from the tasks that are almost completely within our control to perform.

@ Paul Hunt

All very true but your are missing one vital ingredient; the need for Germany to get a better balance in commercial exchanges with the rest of Europe. Germany cannot continue to use the domestic market of the EU as a kind of tied market while it defends its global position. The other countries, especially within the euro, simply cannot take the strain. As Christine Lagarde put it, “it takes two to tango”.

This requires a complete rethink of national German economic policy and a true version of ordo-liberalism, not the ersatz version that CDU/FDP politicians continually use as a defence. The main elements of the argument are (i) Germany cannot be asked to lower its competitivity (ii) in defending its global position, it is defending Europe (iii) the government cannot and does not intervene in economic decision-making, notably in relation to wages.

None of these claims is true. On the first, what is being sought is an end to administrative measures which favour the export sectors of the economy over the domestic. On the second, the bulk of German exports go to other countries in Europe and it is not the job of the peripheral European countries to make German entrepreneurs rich. The third argument is equally without foundation. The authorities intervene massively in the labour market, notably through short-term working arrangements and a skewed social welfare system which includes so-called “one euro an hour” jobs. There is no national minimum wage. Such exists only where there is a need to keep out overseas competition, Deutsche Post being the classic example.

There are also, of course, major restrictions in the retail trade. This is what the ECB report is about and it is correct in its conclusions with regard to the issue.

This is not to say that other countries are not equally to blame. All suffer from the same myopia that others must open up access to their markets while it is perfectly legitimate to block access to their own.


Back in the ‘good old days’ – did they ever really exist? – when the architecture for the post-war economic settlement was being assembled, Keynes was adamant that countries which ran persistent BoP supluses should be exposed to the same opprobium as those which persistently ran deficits. He was shot down by all sides. But, even now with a mixture of floating and managed exchange rates and limited use of capital controls, his strictures remain valid.

It seems we are condemned to keep re-learning what was known in the past, but conveniently forgotten in the interim. And each time the lesson becomes more harsh.

In any event (and returning to topic) I’m sure most here – and all those with power and influence in domestic policy-making – will cheerfully ignore the implications of this ECB report.

@ Paul Hunt

Keynes, as usual, was right. However, I would not be so pessimistic. Nothing was done about the issue in the past because it did not arise in the context of a monetary union. It does now and the ultima ratio that Merkel is so fond of is about to present itself.

Incidentally, Lagarde was shouted down when she dared raise the topic last year but there is now a formal structure within which it can be raised cf.


Agreed. But do you not find it interesting that we’re the only people on this thread which relates to important domestic policy issues, but all of the other threads are filled with ranting about things over which we have little control or the iniquities of external parties or self-serving defences of entrenched positions and attacks on those who question them?

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