Competitiveness and external imbalances within the euro area Post author By Philip Lane Post date December 7, 2012 A new ECB OP on this topic is here. Categories In Uncategorized 4 Comments on Competitiveness and external imbalances within the euro area ← Value-added exchange rates → Coase versus Pigou and Eurozone Bank Resolution Policy 4 replies on “Competitiveness and external imbalances within the euro area” Again with this “within the Euro area” lark …………. These guys should take a primary level geography course or something. The UK is very much part of European trade the last time I checked……. The dynamics of sov countries interacting with non sov countries is not considered. If being “Competitive” means destroying your internal wealth base then what is the point of being competitive ? Indeed these guys should ask themselves a deeper but not difficult question. What is the goal of competition ? Again these are no longer nation states with their own internal economy or hinterland trading with other nation states. I would not consider Euro jurisdictions as nation states. A new term should be considered as a market state is too polite a term. These are Bitch states. Also labour costs should not be factor in balanced trade………….but to reduce each countries labour force to similar pay levels (paid in a reserve currency) is a recipe for domestic entropy…..and explains the lack of local wage rather then credit demand which is a general characteristic of Europe in general. As each country (especially Ireland which in the immortal words of Brian is a island far from the core) should be looked at as a semi – closed unit with its own commerce / energy hinterland. So we have seen a breakdown in local trade at the city & nation state level within the eurozone helped by strict EU regulations. The closure of traditional bread factories on the North side of Cork city comes to mind. Its the euro dummies. It is the anti state , anti local trade currency. This has built up massive non wage externalities over time hidden by increased credit until blow out. Euro boot camp………….. Competitiveness is one of those terms which has no agreed definition – except in comparative terms, and we are NOT comparing like-with-like within the EU-27. There are 27 sovereigns (well they make this claim) and a sub-set of the 27 share the same currency – but have quite different economies. Ireland does not have the same technological base as Germany. The goods and services we produce and provide are different and we sell into quite different markets. Its not even apples and oranges. More like salt and sand. Productivity is the key. And this can only be quantified accurately within a single state – with its own unique and quirky social, political and economic features. And the disparate states of the EU are a very quirky lot indeed. It is essential that each state optimizes its own internal economic activity. Grow, make and service as much as possible, with and from, your own local sources – even if you have to raise protective barriers to some imports. There is so such thing as a free lunch – and there sure as hell is no such thing as a Free Market- its impossible in practice, even if the theory argues otherwise. Sectoral composition and the mobilization of factors of production are so varied that comparisons are useless – except on paper. Economies are dynamic, not static entities. Heisenberg’s Uncertainty principle comes to mind. The mantra of Free Traders – “There will be winners and there will be losers, but the country as a whole will be better off” is a load of b*ll*x. Sure the winners are fine and do better, but the losers are not fine and never recover. Its a very asymetric outcome. The situation is aggravated enough when its a shift from one productive sector to another productive sector (new technology and processes). But if the shift is from production to service – then your economy goes into the shittery. You must understand this carefully. “Are we there yet!” Comments are closed.