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Symposium 2013

Solution for Designing a Stable Euroland: The Corporate Perspective

The Challenge

It is obvious by now that the German economy is not immune to the on-going crisis: A severe drop in exports to the rest of the euro zone is hurting manufacturing. At the same time a combination of lar ...

It is obvious by now that the German economy is not immune to the on-going crisis: A severe drop in exports to the rest of the euro zone is hurting manufacturing. At the same time a combination of large-scale immigration and of capital inflows makes Germany look like a beneficiary of the gloom elsewhere. While the negative economic effects have so far been largely offset by rising domestic demand and exports to countries outside Europe, the longer-term consequences of the crisis may be severe: Economically, Germany will have difficulties to strive in a Europe in perma-crisis. Politically, Germany faces adverse reactions for the austerity it imposes on weaker partner countries.

Let market forces work in the eurozone

In the absence of adjustable nominal exchange rates, the way back to balance within the eurozone implies a whole range of market-based adjustments. In deficit countries, costs and prices will have to rise by rates below eurozone averages while in surplus countries, such as Germany, higher-than-average rates should prevail, without undermining the mandate of the European Central Bank (which strives to keep inflation rates below but close to 2% for the eurozone as a whole). Increasing the mobility of labor – especially of unemployed people – would benefit both emigration and immigration countries.

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