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Euro Currency
The euro is the currency of the Economic and Monetary Union of the European Union. The euro is used by the participating countries as a currency, but is not the sovereign currency of one country.
Due to the Economic and Monetary Union of the European Union nation states with their own economies have been transformed into a transnational economy with competing locations. After all as a result of free trade in the EU's common market high-wage countries such as Germany compete with low-wage countries such as Romania. And because of the euro monetary union countries have lost the possibility of devaluing their currency to even out their foreign trade balance.
[1]
As one can see other countries succumb to German wage restrain. As a result Germany provides lower prices through lower wages. And due to the lack of exchange rates the other euro countries are at the mercy of Germany's exports. But even without Germany the imbalances would remain due to different unit labor costs. If Germany were no longer in the euro then the next country would take on the role of the surplus country.
The export surpluses displace additional jobs in countries with export deficits. Since the local economy is replaced by imports in this case German imports. Surplus-countries is thus operating at the expense of other countries and exports unemployment to other countries. Thus the Surplus-countries violate the Maastricht Treaty and in the case of Germany the German Basic Law. Since Germany has an export surplus and this exceeds the contractual limit of six percent. [2] [3]
[1] NOMINAL UNIT LABOUR COSTS, TOTAL ECONOMY
http://ec.europa.eu/economy_finance/ameco/user/serie/SelectSerie.cfm
[2] Grundgesetz Artikel 109
https://www.gesetze-im-internet.de/gg/art_109.html
[3] Maastricht-Vertrag
https://eur-lex.europa.eu/legal-content/DE/TXT/?uri=OJ:C:1992:191:TOC
[1]
[1] Intra Eurosystem Balances http://www.eurocrisismonitor.com/Intra_Eurosystem_balances.xlsx
Germany generates its own surplus primarily with other countries which also use the Euro. That means Germany has built up a lot of foreign assets in the euro area and these are the liabilities of other countries.
The export surpluses displace additional jobs in countries with export deficits. Since the local economy is replaced by imports in this case German imports. Germany is thus operating at the expense of other countries and exports unemployment to other countries. Thus Germany violates the German Basic Law and the Maastricht Treaty. Since Germany has an export surplus and this exceeds the contractual limit of six percent.
Whether the debt will ever be repaid is uncertain. If foreign debtors can no longer settle their payment then companies go bankrupt. For whole countries their currency is depreciating. This would then also invalidated the claims.
For this the state can either increase government spending and thus pursue counter-cyclical fiscal policy. However the state can also increase the wage share through the minimum wage and working conditions if demand builds up in the upper income classes due to the purchasing power. The wage rate is the share of the employees' income from the entire disposable income in an economy. And the lower the wage share the more domestic demand will fall. This is also because with rising incomes people start to save and with decreasing income people are less able to save.
The unemployment rate also depends on inflation. With an increase in the supply of workers and a constant demand for workers the equilibrium price in the form of wage levels falls. And as the supply of workers continues to decline while demand for workers remains constant the equilibrium price rises in the form of wage levels. In addition the wage level is inevitably part of the price development and thus of inflation.
According to the concept of NAIRU there are two deviations from it. When the unemployment rate falls inflation accelerates. The reason is that the wage increases are passed on by the companies through rising prices. And when the unemployment rate rises inflation slows down. [1,p.181ff] [1,p.199ff] [2,p.1ff]
The idea for NAIRU comes from the fact that there is an unemployment rate that sets in the long run and naturally. Deviation from this is only possible with accelerated inflation. And without permanent intervention for example through counter-cyclical fiscal policy the unemployment rate rises again to the level of NAIRU.
It is striking that the EU-Commission uses the unit labor costs as a measure for inflation. Thus the European Commission admits that inflation follows the unit labor costs. However the different development of the unit labor costs within the euro area without the possibility of balancing foreign trade balances through the exchange rate is a major problem within the euro area. But in here the EU-Commission refuses to acknowledge this connection.
According to the concept of NAWRU there are the same two deviations from NAWRU as in NAIRU. As the unemployment rate falls so will the pace of unit labor costs and thus inflation. The reason is again that the wage increases are passed on by corporations with rising prices. And if the unemployment rate rises then the development of unit labor costs and thus inflation slows down.
It is questionable whether an entire economy should accept the calculation of the unemployment rate from one individual authority. The authority that has the task of determining this unemployment rate could implement a completely different agenda. And since NAIRU and NAWRU are concerned with limiting inflation and the official NAWRU figures are very high anyway it can be assumed that actually higher wages should be prevented.
However when one site dictates conditions it is right to speak of a market failure. And when wage levels stagnate permanently it also reduces the incentives for employers to increase labor productivity through investment. Stagnating wages thus hinder technological progress and labor productivity growth.
[1] OECD Economic Studies No. 33, 2001/II - ESTIMATING THE STRUCTURAL RATE OF UNEMPLOYMENT FOR THE OECD COUNTRIES
http://www.oecd.org/social/labour/18464874.pdf
[2] EUROPEAN ECONOMY - Economic Papers 455 | May 2012 Structural unemployment and its determinants in the EU countries
https://ec.europa.eu/economy_finance/publications/economic_paper/2012/pdf/ecp_455_en.pdf
[3] Sind 14 Prozent Arbeitslose schon zu wenige? 2019-02-27
https://www.manager-magazin.de/politik/europa/arbeitslosigkeit-in-spanien-laut-eu-zu-niedrig-a-1255221.html
[4] AMECO
https://ec.europa.eu/economy_finance/ameco/user/serie/SelectSerie.cfm
[5] On Econometrics with a Human Face and Business Cycles: A Reply to Fioramanti and Waldmann’s Criticism on the EU’s NAWRU Methodology - ECONOMIC BRIEF 022 | MARCH 2017
https://ec.europa.eu/info/sites/info/files/eb022_en_0.pdf
Euro Currency
The euro is the currency of the Economic and Monetary Union of the European Union. The euro is used by the participating countries as a currency, but is not the sovereign currency of one country.
Due to the Economic and Monetary Union of the European Union nation states with their own economies have been transformed into a transnational economy with competing locations. After all as a result of free trade in the EU's common market high-wage countries such as Germany compete with low-wage countries such as Romania. And because of the euro monetary union countries have lost the possibility of devaluing their currency to even out their foreign trade balance.
The Imbalances
A monetary union is characterized by the fact that there is only one key interest rate. And above all exchange rates disappear with a monetary union. As a result the key interest rate was too high for some countries and too low for other countries. In addition exchange rates eliminated the possibility for countries to balance their foreign trade balance. An even development of wages and labor productivity in all euro area countries was thus necessary. But this was not the case. This is visible in the unit labor costs. These are the wages in relation to labor productivity.[1]
As one can see other countries succumb to German wage restrain. As a result Germany provides lower prices through lower wages. And due to the lack of exchange rates the other euro countries are at the mercy of Germany's exports. But even without Germany the imbalances would remain due to different unit labor costs. If Germany were no longer in the euro then the next country would take on the role of the surplus country.
The export surpluses displace additional jobs in countries with export deficits. Since the local economy is replaced by imports in this case German imports. Surplus-countries is thus operating at the expense of other countries and exports unemployment to other countries. Thus the Surplus-countries violate the Maastricht Treaty and in the case of Germany the German Basic Law. Since Germany has an export surplus and this exceeds the contractual limit of six percent. [2] [3]
[1] NOMINAL UNIT LABOUR COSTS, TOTAL ECONOMY
http://ec.europa.eu/economy_finance/ameco/user/serie/SelectSerie.cfm
[2] Grundgesetz Artikel 109
https://www.gesetze-im-internet.de/gg/art_109.html
[3] Maastricht-Vertrag
https://eur-lex.europa.eu/legal-content/DE/TXT/?uri=OJ:C:1992:191:TOC
TARGET2
Export surpluses and all other financial transactions are summed up in the TARGET2 balance sheet. As one can see the TARGET2 balance sheets continue to deviate.[1]
[1] Intra Eurosystem Balances http://www.eurocrisismonitor.com/Intra_Eurosystem_balances.xlsx
Trade Balance
The trade balance of a region compares the goods and services that are imported with those that are exported. This includes profits from investments. The balance of trade therefore shows how much other regions have been in debt for a region in this case how much foreign countries have been in debt to Germany. A surplus country like Germany receives for the exported goods and services a promise to receive goods and services from abroad in the future. Or short receivable accounts. The surpluses of Germany are thus inevitably the deficits of other countries.Germany generates its own surplus primarily with other countries which also use the Euro. That means Germany has built up a lot of foreign assets in the euro area and these are the liabilities of other countries.
The export surpluses displace additional jobs in countries with export deficits. Since the local economy is replaced by imports in this case German imports. Germany is thus operating at the expense of other countries and exports unemployment to other countries. Thus Germany violates the German Basic Law and the Maastricht Treaty. Since Germany has an export surplus and this exceeds the contractual limit of six percent.
Whether the debt will ever be repaid is uncertain. If foreign debtors can no longer settle their payment then companies go bankrupt. For whole countries their currency is depreciating. This would then also invalidated the claims.
NAIRU & NAWRU
International an unemployment rate that is considered natural has been established itself in authorities. On the basis of this theory politics and decisions are being made internationally and in the EU. On closer inspection however other consequences and conflicts of interest can be observed.The Basics of Unemployment and Inflation
Economically unemployment is a lack of work or oversupply of potential work. With unchanged working conditions and weekly working hours unemployment is a concrete lack of need for workers. As a rule unemployment is divided into five different forms.- Seasonal unemployment depends on the season because for example the construction industry declines in the winter.
- Frictional unemployment occurs when workers change jobs and are unemployed for a short time.
- Structural unemployment includes certain areas such as crises or closures in mining or a region and require above-average efforts to overcome them.
- Economic unemployment is accompanied by an economic downturn and can lead to mass unemployment.
- Technological unemployment is caused if the increased supply of goods and services is not demanded through automation and rationalization because of corresponding wage increases.
For this the state can either increase government spending and thus pursue counter-cyclical fiscal policy. However the state can also increase the wage share through the minimum wage and working conditions if demand builds up in the upper income classes due to the purchasing power. The wage rate is the share of the employees' income from the entire disposable income in an economy. And the lower the wage share the more domestic demand will fall. This is also because with rising incomes people start to save and with decreasing income people are less able to save.
The unemployment rate also depends on inflation. With an increase in the supply of workers and a constant demand for workers the equilibrium price in the form of wage levels falls. And as the supply of workers continues to decline while demand for workers remains constant the equilibrium price rises in the form of wage levels. In addition the wage level is inevitably part of the price development and thus of inflation.
NAIRU (Non Accelerating Inflation Rate of Unemployment)
In economics the concept of Non Accelerating Inflation Rate of Unemployment (NAIRU) has been established. This is the unemployment rate which will set itself at a constant inflation rate in the long run. It is assumed that unemployment will fall as inflation accelerates, as inflation lowers purchasing power and thus labor costs and as a result corporations hire more workers. And vice versa it is assumed that unemployment rises when inflation slows down. Both assumptions are based on the fact that nominal wages are usually fixed for a longer period of time. [1,p.172ff] [2,p.1ff]According to the concept of NAIRU there are two deviations from it. When the unemployment rate falls inflation accelerates. The reason is that the wage increases are passed on by the companies through rising prices. And when the unemployment rate rises inflation slows down. [1,p.181ff] [1,p.199ff] [2,p.1ff]
The idea for NAIRU comes from the fact that there is an unemployment rate that sets in the long run and naturally. Deviation from this is only possible with accelerated inflation. And without permanent intervention for example through counter-cyclical fiscal policy the unemployment rate rises again to the level of NAIRU.
NAWRU (Non-Accelerating Wage Inflation Rate of Unemployment)
The EU does not use the non-inflation rate (NAIRU/Non Accelerating Inflation Rate of Unemployment). Instead the Non-Accelerating Wage Inflation Rate of Unemployment (NAWRU) is used. The EU Commission uses unit labor costs as the basis for calculating inflation. These are the wages in relation to labor productivity. [2,p.3] [3]It is striking that the EU-Commission uses the unit labor costs as a measure for inflation. Thus the European Commission admits that inflation follows the unit labor costs. However the different development of the unit labor costs within the euro area without the possibility of balancing foreign trade balances through the exchange rate is a major problem within the euro area. But in here the EU-Commission refuses to acknowledge this connection.
According to the concept of NAWRU there are the same two deviations from NAWRU as in NAIRU. As the unemployment rate falls so will the pace of unit labor costs and thus inflation. The reason is again that the wage increases are passed on by corporations with rising prices. And if the unemployment rate rises then the development of unit labor costs and thus inflation slows down.
Critique
Various states with the euro as currency have been in crisis for a long time and have unemployment rates of 10%, 20% or almost 30%. Nevertheless the EU-Commission uses its own figures for the natural unemployment rates (NAWRU/Non-Accelerating Wage Inflation Rate of Unemployment). According to the 2017 figures the EU-Commission considers unemployment rates of 13.5% for Greece, 15.9% for Spain, 9.5% for France, 10.1% for Italy, and 9.2% for Cyprus as normal. Local people will probably see this supposed normality different. [4]It is questionable whether an entire economy should accept the calculation of the unemployment rate from one individual authority. The authority that has the task of determining this unemployment rate could implement a completely different agenda. And since NAIRU and NAWRU are concerned with limiting inflation and the official NAWRU figures are very high anyway it can be assumed that actually higher wages should be prevented.
However when one site dictates conditions it is right to speak of a market failure. And when wage levels stagnate permanently it also reduces the incentives for employers to increase labor productivity through investment. Stagnating wages thus hinder technological progress and labor productivity growth.
[1] OECD Economic Studies No. 33, 2001/II - ESTIMATING THE STRUCTURAL RATE OF UNEMPLOYMENT FOR THE OECD COUNTRIES
http://www.oecd.org/social/labour/18464874.pdf
[2] EUROPEAN ECONOMY - Economic Papers 455 | May 2012 Structural unemployment and its determinants in the EU countries
https://ec.europa.eu/economy_finance/publications/economic_paper/2012/pdf/ecp_455_en.pdf
[3] Sind 14 Prozent Arbeitslose schon zu wenige? 2019-02-27
https://www.manager-magazin.de/politik/europa/arbeitslosigkeit-in-spanien-laut-eu-zu-niedrig-a-1255221.html
[4] AMECO
https://ec.europa.eu/economy_finance/ameco/user/serie/SelectSerie.cfm
[5] On Econometrics with a Human Face and Business Cycles: A Reply to Fioramanti and Waldmann’s Criticism on the EU’s NAWRU Methodology - ECONOMIC BRIEF 022 | MARCH 2017
https://ec.europa.eu/info/sites/info/files/eb022_en_0.pdf