Next Up For A "Recovering" Europe: A 30-50% Collapse In Wages In Spain, Italy And... France

Tyler Durden's picture

Several weeks ago Europe officially entered a double dip recession, and based on various secondary economic indicators, even Europe’s primary economic powerhouse, Germany, is on the verge of negative economic growth. The reasons for Europe’s woeful macroeconomic state are numerous, but boil down to two primary ones: i) massive external imbalances among Eurozone nations (think soaring peripheral debt) coupled with the inability to devalue the common currency as that would mean a failure and collapse of the joint currency union, ii) a desperate need for the periphery to regain price competitiveness (via wages and labor costs) with Germany in order to arrest and collapse an unemployment rate (general, but especially youth) that not even the most optimistic pundits dare claim is sustainable.

Said otherwise, most European countries (including France) face a desperate need for external devaluation, which is impossible under a monetary union, leaving only internal devaluation as an option. This is where the much maligned concept of austerity comes in:  from a macroeconomic perspective, austerity is not so much an exercise at moderating the pace of debt increase (as neither Spain nor Italy have reduced their rate of debt issuance), but of gradually becoming more price competitive with Germany: a key outcome that will be needed for the Eurozone to have any chance of survival, i.e., lowering sticky unemployment rates from levels that virtually assure social "disturbances" in the months and years ahead.

And herein lies the rub: because while protests against “austerity” (which as we observed recently has still not been truly implemented in Europe, and certainly not in Portugal or Spain) are a daily event in most PIIGS nations, “you ain’t seen nothing yet.“ The reason: to achieve the unavoidable macroeconomic rebalancing, and to collapse the spread between soaring labor costs in the periphery and those of Germany (see chart below), the bulk of European countries will need to see wages collapse by anywhere between 30% and 50% to compensate for the lack of state-level currency devaluation optionality. And yes, this includes France.

Goldman’s Huw Pill explains the scary future facing peripheral European workers:

We ask the following question: For the Euro area countries of interest, how big a real exchange rate depreciation (which (to recall) in monetary union means (to a first approximation) a relative wage cut) is required in order to establish a sustainable external position.



The results of our exercise are shown below. They demonstrate that relying solely on internal devaluations to correct existing imbalances implies a need for very large wage and cost adjustments. For the small and vulnerable peripheral countries (Greece and Portugal), we would need to see wages fall by at least 50% relative to Germany (from their level at the start of 2011) if this mechanism alone were to re-establish external sustainability. And even for larger and richer countries such as Spain and France, relative wage reductions (on a comparable basis) of 30%+ are needed.

Which begs the question: how will the long-suffering workers of Greece, Spain, and Italy (and also France), who are confident they have gone to the 9th circle of hell in the past 4 years, react when they realize that none of the needed internal devaluation has actually taken place yet?

In other words, what happens when Spanish wages tumble by another 30%, as they must if the EUR, and the Eurozone, is to survive? Alternatively, if there are no labor cost cuts, how many more years and months of 1%/month unemployment increases will the unemployed in the periphery suffer before it realizes that chronic 25%+ unemployment is here to stay, as is the European Depression. What is most sad is that the economic reality is that regardless of the “all clear” that central-bank-manipulated market indicators tell us, the European imbalances continue deteriorating at a rapid pace.

And the paradox is that as long as market indicators aren’t flashing red, no politician has the urge to enact the critical laws needed to fix the underlying problem, as that same fix will lead to an immediate end of said politician’s career.  

Needless to say, not even Goldman thinks that kindly asking for Greek and Spanish workers to take another 30-50% pay cut is feasible and would lead to anything short of revolution (and the alternative: asking Germany to adopt a wage increase and watch German inflation surge is just as ludicrous):

We view relative wage cuts of this magnitude as unfeasible: it is difficult to imagine France accepting a one-third fall in living standards relative to Germany. Of course, one could rely on Germany to raise wages, so as to redress the competitiveness gap from the other side. But ultimately such an approach would imply Germany accepting much higher rates of inflation, say above 4% pa for a decade or more, assuming the ECB met its target of keeping area-wide inflation close to 2%. We doubt the German public would countenance such an eventuality….

So does this mean that despite all best efforts to the contrary, when one looks beyond the daily hollow rhetoric emanating from Brussels and focuses on the simple economics of it all, that the Eurozone is doomed? While our pessimistic opinion on the viability of the failed European project is well-known, not even Goldman can bring much words of encouragement:

To answer that question, we need to explore the implications of relaxing some of the assumptions that underlie the exercise described above. First, we could implement the necessary relative wage adjustment through resort to nominal exchange rate changes. But allowing exchange rates to vary implies exit from the Euro area and reintroduction of national currencies. Relying on this mechanism implies recognising the impracticality of the euro, rather than describing how it can be saved.


Second, uncompetitive economies could suppress domestic demand to contain imports and run with mass unemployment on an ongoing basis. In our view, this is not politically feasible. British experience in the late 1920s (following Winston Churchill’s decision to put Britain back on the Gold Standard at its pre-first World War parity) demonstrates as much. High unemployment, recessionary conditions and lost export markets were the precursors to abandoning gold rather than mechanisms for sustaining British adherence to it. One would expect as much for the Euro area periphery: if mass unemployment become endemic and permanent, it would eventually precipitate euro exit.


Third, uncompetitive peripheral countries could be subsidised on an ongoing basis by the more competitive surplus countries, i.e., a system of fiscal transfers from north to south could close the current account deficit and eliminate the existing imbalances. Such mechanisms are quite normal in continental monetary unions: witness the transfers from wealthy New York to poorer West Virginia via the federal government in the United States.


But the institutional mechanisms and political support for such area-wide redistribution are (as yet, still) lacking in the Euro area.

It is worth pointing out that the ad hoc and very much informal (after all Merkel’s reelection chances are much lower if the German people understand what is really happening in Europe) transfer union has worked so far primarily because it funded the relatively modest economy of Greece. Yet even ordinary Germans understand that the Bundesbank’s TARGET2 claims are nothing more than Germany’s implicit fiscal transfer mechanism to the rest of Europe (one which happens to benefit German exporters: i.e., a public to private transfer scheme), one which is soaring by tens of billions each month.

To be sure all such indefinite ad hoc attempts to delay the day of “labor-cost equivalency”-reckoning using piecemeal and incomplete fiscal transfers from Germany to everyone else, will one day fail, when surging nationalist parties across Europe just say “nein” to ceding sovereignty to Germany which will eventually demand all Europe bow down to it in exchange for a full-blown fiscal union and Eurobond initiative in which Germany officially bears the cost of “temporary-to-permanent” Current Account imbalances, by shifting from TARGET2 to a wholesale German-funded fiscal union. This “unthinkable scenario” is quite thinkable by most, especially Europe, but in this case certainly Goldman:

A number of the options listed above are feasible for the smaller peripheral countries. Since the magnitude of structural change required to make them sustainable is so large (and the institutional capacity to implement those changes open to question), it is likely that we will see a prolonged period of both mass unemployment and subsidisation if they are to remain within the Euro area. This has been the experience thus far. Indeed, recent discussions over the terms of financial support for Greece in Brussels can be seen as a codification of how the subsidies will be provided in that case.


At the same time, we should not ignore the possibility of exit: were the rest of the Euro area to develop sufficient robustness to manage the transition, one could easily imagine a Euro without Greece or Cyprus.


But for the larger countries, options are much more limited. It is unthinkable to have a Euro area without France; at that point, it would become little more than a greater Deutsch mark zone. The politics of perpetual mass unemployment are equally infeasible as in the small peripheral countries. And France and Spain are simply too large to subsidise on an ongoing basis. So there is no alternative but to implement a restructuring of the economies to reduce the needed real depreciation to a plausible level. But the nature of the restructuring needs to be tailor-made for the country concerned.

The only good news to date, if one may call it so, is that Spain has already taken some modest steps to address its internal devaluation. However that former AAA-stalwart, and now bastion of resurgent socialism, France has not. And it is here that those who took offense to that recent edition of The Economist with the ticking time baguette cover should be paying attention.

Spain’s economy is weak and vulnerable at present. But while of little comfort to those unemployed, there is a silver lining to that weakness: it is associated with a necessary restructuring that offers hope of a more balanced and competitive Spanish economy in the future.


Unfortunately, there are reasons for greater caution with regard to developments in France. Like Spain, France also needs to shift resources into the tradable sector in order to reduce its chronic and deteriorating current account deficit. But France’s problem is not a bias towards the construction sector as in Spain, but rather a bloated public sector. Public expenditure in France is 56% of GDP, compared with 47% in Germany: the inherently domestic-oriented nature of government spending implies that France produces too few tradable goods relative to Germany.


In Spain, a largely spontaneous bursting of the housing bubble initiated the necessary restructuring of the economy. But in France a conscious political decision to shrink the state is needed to achieve the restructuring. And the political obstacles to that decision are high. While the French authorities increasingly recognise the need to improve French competitiveness, developing an understanding that this implies a deep restructuring of the economy remains elusive, at least at the political level, as recent discussion of industrial policy attests.

And then there is that other wildcard: the UK. As CLSA’s Chris Wood writes in his latest edition of Fear and Greed:

Europe, the path ahead for the Eurozone was made crystal clear with a plan unveiled by European Commission President Jose Manuel Barroso on Wednesday, outlining the need for an overhaul of Eurozone institutions to pave the way for the collective issuance of debt. This fits GREED & fear’s base case; namely that the Eurozone is moving towards “debt mutualisation”, a  process which will ultimately lead to fiscal union. This week’s “deal” on Greece, with its extension of maturities and lowering of interest rates, is a further indication of the political determination to keep the Eurozone going in its present form and the unwillingness to contemplate the stresses of a Greek exit.


The above is also why the real political tension triggered by the direction in which the Eurozone has now embarked will turn out to be in Britain, not Spain or Greece. This is because there is real antagonism towards the Eurozone in Britain whereas in Greece and Spain the majority of people continue not to blame the euro for their problems. This is why it is possible that the Eurozone can make a deflationary adjustment, as indicated by the periphery countries’ improving current accounts. It is also why Britain’s fresh-faced Prime Minister, David Cameron,has a political problem.

All of the above is correct: the true European fulcrum nations have now shifted from the PIIGS to France and the UK, but it will take some time for this to become evident. What is unclear is the question of timing. And with Europe hell bent on actually addressing the real underlying causes for its persistent recessionary state instead of merely attacking the symptoms (soaring yield spreads, plunging equity markets, diving EUR FX rate), one can be sure nothing will change as long as the ECB gives the impression that European imbalances are under control, courtesy of a bond purchase backstop, which sooner or later will be activated at which point this too threat will become reality, and like QEternity, will lose all potency.

It is only then that Europe will have some hope of finally addressing that which is the true basis for its unsustainability: the internal imbalances which in the absence of currency adjustments can only be addressed through collapsing labor costs, and wages.

Yet telling a continent, which in its desperation is hopeful and confident that the worst is behind it (as its lying politicians take every opportunity to note) that the most acute of standard of living collapses is yet to come, is borderline cruel and unusual. So we will just keep our mouths shut and let Europe’s politicians bring this depressing message to their people. We are confident the reaction will be more than dignified.

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Charley's picture

So 25%  unemployment is not enough to reduce labor costs in Spain? Ha! Okay.

economics9698's picture

Someday the peasants will wake up and realize government produces nothing.

Y = C + I – G + NX

Oh and having a central bank is not exactly a good idea either.


Charley's picture

"Y = C + I – G + NX" is not an explanation for what is happening in Europe, it is a tautology -- a definition of national income. No matter what C + I – G + NX is in reality, it always equals Y, by definition.

economics9698's picture

Well according to the OECD Tables France, Italy, Portugal, UK, Greece, are all over 50% government, waste, aka deadweight loss.  Now if all those workers were given a real job I bet the living standards of Europeans would improve dramatically.  The EU is 50% government, 50% living off the other 50%.  That won’t last much longer.

You do not understand, if Spain cut it's government by 50% creating a tax savings for corporations they would immediately be competitive with high tax Germany and France.  Sometimes you ZH finance guys…

Why make workers pay?  Force the southern countries to cut government or leave the EU. 

And I bet if the central banks were eliminated the workers would be able to keep their increased production for themselves.  Getting rid of bankers printing the medium of exchange to hand out to other bankers is not sound economics, its theft.

Korea, 30% government, 33% public debt, does not seem to be having these debt problems.



Charley's picture

I agree with your take on government. But, that is still not an explanation. Since government spending controls so much of the economy, the loss of the spending will only depress final demand. And this would be on top of an already astronomical 25% unemployment. Who will be left to buy anything from corporations. Corporations don't just consider costs-- their market is much more important -- that is why they are the biggest defenders of big government.

economics9698's picture


It’s not complex.  Government produces nothing.  Government borrows, prints, or taxes money from the producers to its balance sheet.  It then spends that money on what it deems appropriate, medical, social security, and defense.  In the process of moving money from the right pocket to the left pocket there is inefficiency. 

Some programs are very good at moving funds from taxpayers to consumers, social security, but that is the exception not the rule.

Most tax dollars must go through a bureaucracy and studies have shown, it depends, varies all the time, that about 55 cents of every dollar is misallocated or wasted.

In the private sector investments have to make at least 100% plus a “accounting profit” of 3%.  Most fund managers, in normal times, look to make a “economic profit” of inflation, 2.2%, plus a decent return, say 3% or 5.2%.

This is why countries with small government sectors do so much better than large bloated government sectors.  The private sector MUST allocate resources in the most efficient manner possible or companies’ go out of business and people get fired.  If a private fund manager loses 8% of his portfolio what do you think will happen? 

Fired of course.

Government, on the other hand has no “price” mechanism, profit, loss, signals and if a program does not work simply raise taxes to “make” it work.

The key to economic growth is the efficient allocation of resources.  Moving resources out of government for Spain, Italy, Greece, Ireland, and Portugal, and into the private sector, lower taxes, should be priority #1 if the EU wanted to hang around.

If they were real economists they would proportion the amount of government each EU country could have to be “equal.”

But they are not real economists, they believe in garbage and they will never figure it out, and thank god for that.  The EU is evil one world government and needs to end.


Milton Waddams's picture

Govenment is the (imperfect) check on efficiency-driven 'private sector investments'.  It is quite literally the cog in the machine churning toward a global wage singularity.  In this view, government is, by definition, inefficient, corrupt, bureaucratic, et al.

Richard Chesler's picture

espoir et changement

It worked well for the local banksters' stooge.


GetZeeGold's picture



Chart that and it turns out to be parabolic curve.....not really sure what it's called.

Shevva's picture

Government = Bureaucratic over sight of every part of your life and licences to show that they approve what you do in your life. (Unless you got the money to pay them off then do what you want).


Politics = Mediation between children.

John_Coltrane's picture

Hey, just wanted to complement you on a top notch explanation of the importance of the profit mechanism and not using other people's money as capital (i.e. taxes).   

For those scientists in the audience I would add the following analogy: the difference between using energy to generate heat via friction vs doing useful work (i.e. driving a piston).    Friction, both economic and mechanical is inevitable (entropy must increase), but the private sector driven by profit and fear of failure, minimizes it.  Its the fundamental law of economics just as entropy rules thermodynamics.

macholatte's picture


Yea, yea, yea.

Everything the guys above are saying is spot on and a good discussion and they have my thanks for that. Only problem is they forget one thing, maybe the most important thing ...... government does not give a rats ass about effeciency.  Government is all about power & control. Nothing else matters.



Shoot first and ask questions later, and don't worry, no matter what happens, I will protect you.
Hermann Goering


Acet's picture

It's more complex than that: the purpose of Government is to regulate shared commons (so as to avoid tragedies of the commons), to arbitrate and police the set of rules and the borders between one person's rights and another person's rights and to pool resources for protection against long-tail events (especially invasions by foreign powers).

Governments don't make products (nor should they), they provide services which by their own nature are needed by the community as a whole, rather than single individuals.

That said, governments the world over have spread far beyond this.

Lebensphilosoph's picture

The purpose of government is whatever those governing think it to be. A community, on the other hand, is an object of thought, and doesn't 'need' anything. Only the individuals of the community can deem that they require something for some purpose.

Acet's picture

Actually communities are subject to a form of natural selection: communities that decided they didn't need a centralised professional group of armed men were wiped out of history by invading neighbours; those that decided that they did not need some kind of ruling and rules enforcing mechanism were destroyed from the inside by chaos and confusion as the assholes in the group made life miserable for everybody else (typically, everybody leaves - same dynamic as when you go out with a group and a couple of them are assholes); those that decided they need not have some central management of common resources were destroyed by resource exhaustion and starvation.

Even amongst those that adopted and never went beyond some kind of simple, traditional form of governance (say, a council of elders) were sooner or later overwelmed by neighbours with more centralised forms of governance, by catastrophes which are beyond a small community's ability to overcome (simple forms of governance don't work with bigger communities) or simply by evolution of technology and the loss of the younger members to communities that were more nimble to adopt new ways.

So no, in practice the individuals in a community have little or no choice when it comes to adopting some kind of governance: either they do it or some other community does it for them or their community ends up collapsing from internal abuse or from some kind of tragedy of the commons.


Lebensphilosoph's picture

'Actually'?  Is this supposed to form some sort of response to my points? No 'community' ever decided anything, because a 'community' is not a sentient being capable of making decisions.


[quote]Actually communities are subject to a form of natural selection: communities that decided they didn't need a centralised professional group of armed men were wiped out of history by invading neighbours; those that decided that they did not need some kind of ruling and rules enforcing mechanism were destroyed from the inside by chaos and confusion as the assholes in the group made life miserable for everybody else (typically, everybody leaves - same dynamic as when you go out with a group and a couple of them are assholes); those that decided they need not have some central management of common resources were destroyed by resource exhaustion and starvation.[/quote]

History is replete with examples of peoples that defened themselves with no standing professional army. Tell me how well those Romans fared against the tribal Germans, why don't you. It is also replete with examples of peoples with no 'central state' in the modern sense who survived centuries in their way of life without one (and of cnetral states that collapsed utterly within centuries). In fact, if anything, that is the norm. We look at ancient Greece. When the Greeks knew no Greece but only a collection of independent polis, the Greeks prospered. When the time for Athenian empire-building and Alexandrian megalomania arrived, their destiny as the enslaved schoolmasters of Roman children was written in stone.Which reminds me: a state is not a community, and your next point utterly fails to provide grounds for your praises of centralisation in that regard. You also blather a lot without citing examples, but what example can you provide of your central state that 'survived' indefinitely? And what examples can you cite for 'resource exhaustion' where there was no 'central management' as you envision it? I can think of the Sumerian and Mayan empires and their troubles, or of Lenin's regime in centrally mismanaging agriculture, or of the Roman Imperium leaving deserts in its wake in once fertile regions of the Mediterranean. I can also think of centuries, or millenia, of agriculture in 'barbarian' and 'feudal' Europe which saw no more a centralised 'management' of resources than the village or the lords of the estate.

e-recep's picture

try to start a community without a governing body and watch it being eaten alive by a well governed neighbouring community. you libertarians are naive dreamers.

JuliaS's picture

Thanks to leverage and fractional reserve lending the amount wasted out of every dollar spent is actually closer to 2 dollars.

Non Passaran's picture

The government "produces" something out of nothing (in terms of the equation) by creating debt and pulling future demand into present time. Needless to say we'd be better off without such "help".

sessinpo's picture

Right on economics9658. Up arrow for you.


What charley seems to miss is a very basic concept that you have expressed several times, 'Government produces nothing".

Government only transfers things. There are only a VERY few exceptions where government has been the seed of a productive technology simply because the private industy was not willing to take the risk at the time. Space technology is one example. But you are right. In over 90% of the time Government produces nothing.


And here is the sentence where charley exposes his error "Since government spending controls so much of the economy, the loss of the spending will only depress final demand."

What charley doesn't see, is that in MOST instances, if the market demand is there, private industry would step in to meet demand because they can profit from it.

And to keep my post consistent, since I stated that Government only transfers, Government often misallocates resources when they transfer causing malinvestment - as an example, can anyone say Solyndra?



Tao 4 the Show's picture

Great point and the real answer to the Europe mess that seemingly NO ONE has the guts to deal with.

But a finer point has to be made as well: The needed cuts in government, in places like Italy, are cuts to corruption and siphoning off of govt funds into someone's pocket. The amount of abuse going on is staggering. And it seems to be increasing.

Much of the corruption is largely hidden from view when deals are made at high levels for construction, projects, etc. but another huge amount is hidden in plain view with outrageous salaries and benefits for politicians, state-owned TV execs, etc., etc.

Monti deals with none of this and instead tries to squeeze working people and pensioners who are living on a pittance. The great proposed savior of all this is Brussels, another layer of corruption.

Europeans have mostly seen government largesse coming out of Brussels and don't yet seem to grasp that all that is only bait on a barbed fishing hook. The little outcry building among the public is mostly against austerity.

Only a few voices catching a fraction of public attention are discussing the problems with Eurofication. And the black hole of corruption remains undiscussed.

TBT or not TBT's picture

The outcry isn't just against austerity, it's also against work, and at the same time against anyone ever losing their job or benefits, or early retirement.

It's...well..let's say it, simply delusional.   

Count on the zero(sum)peans to go zombie on each other as they've done for centuries, one mo' time.

In the U.S. things are like this with only about half of the population.   In Europe it is over 80%

Ghordius's picture

you are indeed making finer points, including the neverending fight against corruption

nevertheless "Europeans have mostly seen government largesse coming out of Brussels" is utterly wrong

the whole next EU budget that is being discussed at the moment is one trillion - for seven years. compare it to the national budgets

if you want to be nasty compare it with the US spending patterns between states and federal

the truth is that the EU partecipates very visibly and very often to national spending programs, particularly in infrastructure

this gives the wrong impression of the EU building lots of things and spending like a drunken sailor


remember that there are no european taxes. the whole EU budget is carried by budget items in the member's national budgets, "powered" by national taxes

GetZeeGold's picture



neverending fight against corruption


A little napalm in downtown Brussels should do the trick.

Acet's picture

Actually VAT is supposed to be an EU tax.

I get what you say about the EU system being a far smaller burden on EU citizens than national governments. The perception of it amongst english-speaking people is much worse probably because a lot of the English media (and English politicians) have made a habit of making noise against the EU as a way to distract the plebes from the plundering that's going on in their own country. If you read newspapers in other languages the image is far more nuanced.

That said, there are things like the CAP (Common Agriculture Policy) and the common fisheries policies that are in dire need of fixing. Also the whole EU commission is a non-representative gathering of would-be elitistic statesmen that needs to disapear and the council of ministers has too much power (it's a common occurrence for a leader of an EU country to try and push-through unpopular measures via the council at an EU-level rather than directly impose them on their own country and then blame the EU). A proper representative European Union would relly solely on it's only directly elected body - the European Parliament.


Ghordius's picture

collected by the nation states and then given to the EU by them, as per treaty

it all goes back to the fact that the EU is still a Regional Treaty Organization that endless propaganda is painting as a "superstate"

and giving too much power to the EU Parliament is a step in the direction of federation, instead of confederation

yes, you are correct with "it's a common occurrence for a leader of an EU country to try and push-through unpopular measures via the council at an EU-level rather than directly impose them on their own country and then blame the EU"

but this is a challenge for the informed citizenry and the press, isn't it? those kind of shenigans are in every kind of organization

Acet's picture

This is exactly the same thing that is happening in Portugal and, from what I heard, Spain and Greece.

There's all sorts of ways in which money is siphoned out from the State to private individuals (often politicians) which have been pointed out again and again (in Portugal it's Foundations setup by polticians that get state money, sweet public-private initiative deals with no risk for the private side paying huge interest rates and gold-plated state pensions for well-connected people) and yet the "Austerity" is always about squeezing the middle class.

Mind you, I live in the UK at the moment and the place is also seriously corrupt at the highest level, though it's usually via the "I take care of you now, you take care of me later" mechanism rather than direct monetary payments, which is why you see politicians retiring to high paid jobs in financial institutions, people that work in the regulators moving to the companies they regulate in private sector after a couple of years and people that manage other people's money (such as pension fund managers) moving to the companies they invested that money in or from which they bought services.

This, together with fake democratic systems where not all votes are worth the same (i.e. electoral circles) so that there is in practice a two party-system, makes it far more likelly that the end-game in such places is going to be some kind of revolution.

Joe A's picture

I agree, government spending should be cut. But why would southern European countries cut government spending when the north is bailing them out anyway? There is no arm twisting to cut government spending. That is the problem. Government jobs plus extra 13/14/15/16 salary bonus = votes.

Hobbleknee's picture

I don't think they teach that in the government-run schools.

AmCockerSpaniel's picture

Just look at the US. Every day we lower the cost of our labor as a nation. It's called free trade, and the people love it.

Hobbleknee's picture

There is no such thing as free trade.  So called "free trade" agreements are thousands of pages long.  Is it really free if you have to abide by thousands of pages of rules?

piliage's picture

So 25%  unemployment is not enough to reduce labor costs in Spain?

Not if the other 75% are working for the government or unions, which they are.

Peter Pan's picture

Reducing wages by another 30-50% will gut the real estate market and absolutely destroy the collateral held by banks for loans which in turn will destroy banks. Am I missing something or is someone dreaming about such a drop in wages in a common currency being the right thing for rebalancing?

samcontrol's picture

I just came back from three cities in Germany plus Paris, no cut in wages there and people running normal lives,,, just saying.

Debugas's picture

it is not the question of is it right or wrong. It is a statement of what will inevitably happen - reduction in standard of living at least by half.

Omen IV's picture
rebalancing on the back of labor is an impossibility when the marginal cost of labor for private enterprise - manufacturing - is $1.00 to $2.00 per hour in the Far East - every analysis for every product to be manufactured - especially as QC continues to improve with equipment shipped from Germany to Far East  - will be 100% MOVE OUT OF EUROPE - rebalancing will not be 50% wage reduction but 80% - currency devaluation will be met by chinese with comparable change - this will not be a solution.  no escape - Murder by Neglect for 100's of millions of people  - the service business depends on disposable income - when there is no discretionary income then - those people are off the air as well  - requires a new paradym

change the definition of the Common Market and end the WTO ! only trade without tariffs with those with comparable wages - Canada /Western Europe plus the USA - 700 million people is enough for sustainability in a closed loop.

all other countries get tariff barriers unless they achieve comparable wages to core Common Market - NEWCO -


slaughterer's picture

Reducing wages by another 30% in Spain is the formula for European self-destruction.  

AnAnonymous's picture

So 25% unemployment is not enough to reduce labor costs in Spain? Ha! Okay.

It is well known by now that for 'americans', the only solutions to ailments of 'americanism' is even more 'americanism'

They will keep hammering their points until something happens so that they can attribute the change in situation to their points.

It is how 'americans' work.

By the way, if they end that trend, that would put so many of 'american' intellectuals, educated out of business.

Which would be bad for consumption.

Consumption, consumption, consumption, the 'american' duty.

midtowng's picture

Only a return to fuedalism will satisfy the financial elite

nmewn's picture

Surely if they just tax the "rich" everything will be fine. But in short order the "rich" will be anyone working for the states fiat.



pragmatic hobo's picture

the whole euro-zone thing was to turn europe into USA, of course the whole economic process in the USA for the past 40 years was to turn US into first Japan, and now China.

Dan The Man's picture

... and eventually North Korea.  The most perfect government.

Urban Redneck's picture

I think that article uses a lot of buzzwords to generate a Pavlovian reaction among readers and masks an ugly truth-

Regardless of the insidious (wealth transfer) effects of Federal Reserve domestically, EVERYONE in the US receives benefit from the USD's reserve currency status, which lowers the costs of non-self-sufficiency.

Is a unitary supranational globalist hegemony best prevented by maintaining a unipolar (single super power) US dominated global trade paradigm, or by creating competing regional supranational powers?

Yen Cross's picture

It's all good in " Unicorn Rainbow Land".. Fire up the undervalued "HP Meg Whitman"  printing presses...

 Failure to [ obfuscate] truth is soo in }VOGUE}... Ratings agencies and Accounting firms  belong on some small Island!

  We can call it the Google ghost Island!

Wun Hun Lo's picture

I luv Unicorn Wainbow Rand.

Yen Cross's picture

I'm really stupid, or you are talking South Africa?

q99x2's picture

The Goldman Sachs formally attacks the European people. Who will win. I guess we know Greece lost and Germany is losing. No wonder the US stayed out of WWII for so long.

Non Passaran's picture

If nation states are managed by representatives of the people, then we can say it's a win-win situation - the ones who represent the people and Goldman Sachs are one and the same. They will win. We will win! Long live democracy!

Tirpitz's picture

"the bulk of European countries will need to see wages collapse"

Good thing executive compensation won't be affected; again boni are safe.