03 December 2010

The Eurozone crisis and competitiveness

Several times, I wrote on this blog and in articles that the premises of the construction of the Euro were flawed from the beginning, mixing countries displaying stages of economic development too far apart, increasing debt and artificially low cost of financing creating a smokescreen. I also wrote that, in the absence of a two tier Eurozone (strong countries/weak countries), only a fiscal and social integration, with a loss of sovereignty (a German Europe), was a viable solution since the competitiveness gap has increased instead of decreasing for the past ten years or so: this is at the heart of the current crisis.
All the EU/IMF sponsored rescue packages and ECB intervention -buying PIGS debt from banks to lower their cost of financing and relieve banks which loaded themselves to play the yield curve (encouraged by the ECB)- are not mending the root of the problem: lack of competitiveness of the PIGS countries (I always hesitate do add another “I” for Italy) that will take at least 10 good years to improve.
The World Economic Forum published “The Global Competitiveness Report” which exemplifies this:
The World Economic Forum: The Global Competitiveness Report http://www.weforum.org/en/initiatives/gcp/Global%20Competitiveness%20Report/index.htm