The Eurozone Crisis... what is it about?
c) Currency rates
d) None of the above
The correct answer is.. (d) none of the above. Because it's all about the Real Economy (tm), that's why...
Competitiveness is arguably the most "real" indicator for the Real Economy, one that we can use to gauge a nation's economic health. Here's a chart I constructed based on the latest data from the World Economic Forum's The Europe 2020 Competitiveness Report: Building a More Competitive Europe.
I have used the data to calculate and present competitiveness as percentages of the Eurozone average (blue bars), of Germany (red bar) and Finland's maximum score (yellow bar). Click on the chart to enlarge it for easier viewing..
Competitiveness In The Eurozone
To make a long story short... how can Spain and Germany (see previous post) share the same currency - and just about nothing else - when Spain is only 85% as competitive as Germany? It stands to reason that, given no other measures, Germany's economic prowess will quickly "swamp" Spain's less competitive economy. Not to mention Greece (at a horrible 75% of Germany's competitiveness), Italy (at 81%) and Portugal (at 87%). Even France (94%) is at risk, given enough time.
Germany's solution is to insist on quickly making the competitiveness "deficit" countries more competitive via a wrenching process of internal devaluation and outright deflation.
Well, it's not working - at least thus far. After two years of pain, the cost of huge unemployment and loss of earned income is simply too high for societies to bear. At best, the "operation" will eventually succeed, but the patients will be dead!
Europe's laggards unquestionably need the economic reforms contained in Germany's "medicine"; but Eurozone as a whole requires a common fiscal policy (e.g. outright transfer payments between nations) if it is to survive.