Saturday, February 27, 2010

Germany Should Remember Its Euro Gains

by Stephen Fidler

Wall Street Journal

February 26, 2010

What has the euro zone ever done for us?

If you're German, the answer to that question is quite a lot. But that doesn't seem to be the way German commentators and politicians think about it.

The popular German narrative, as gleaned from media reports, goes along the following lines. Since the euro's inception in 1999, we have made big sacrifices to maintain the competitiveness of our economy, keeping wages down to boost exports and maintain our trade surpluses. Others in the euro zone, particular the Greeks, made no such sacrifices and built up big debts that they are struggling to repay. Now, they have the temerity to knock at our door to ask for a bail-out.

But, at a weekend conference discussing the lessons from the economic crisis, as much time was devoted to the prospect of Germany leaving the euro zone as there was to the "peripheral" countries of Greece, Portugal or Spain abandoning it. The conference of prominent economists, current and former officials and others was held at Ditchley Park, a stately home in the English countryside.

To be sure, nobody was predicting any such exit is likely, certainly not in the short term. But if Germans feel they got a bad deal in swapping their low-inflation Deutschmark for an arrangement that forces them periodically to transfer enormous sums of money to southern Europe, then that shouldn't be ignored. There was, however, another parallel message from the conference, organized by the London-based Centre for European Reform: Germans, get over it. You've been the biggest winners from the euro.

Why? Most importantly, because it's attached to the weaker economies, the euro is at a lower level than the mark would have been. That has been a huge boon to German exporters. Instead a $1.35 euro, exporters could have been facing $1.55 or higher.


Wednesday, February 10, 2010

Greece Grapples With Tax Evasion

Wall Street Journal
February 10, 2010

Greece has one apparently simple option for reining in a budget deficit that has roiled financial markets: Clamp down on widespread tax evasion, which costs the country an estimated €15 billion ($20.5 billion) a year, an amount that would pay off a big chunk of the budget deficit.

The trouble is, tax evasion in this Mediterranean country is extremely difficult to eradicate.

Trying to cope with its budget problems, Greece announced new austerity measures Tuesday.

Finance Minister George Papaconstantinou said public-sector salaries would be frozen and supplemental incomes for civil servants cut by an average of 10%. Salaries and bonuses for the prime minister, senior government officials and officials at state-owned enterprises will be frozen, and under some conditions reduced. The measures would save some €850 million this year, said Mr. Papaconstantinou.

The government also announced a higher marginal tax rate of 38% on people earning more than €40,000 a year, up from about 25%.