The eurozone crisis and competitiveness

Dec 3, 20100 likes25 views

The document discusses three main points: 1) The flaws in constructing the Eurozone by mixing countries with different economic development stages which increased debt and artificially lowered financing costs, obscuring issues. 2) Lack of fiscal and social integration has led to increasing competitiveness gaps over 10 years, at the heart of the current crisis. Bailouts and ECB intervention do not address this root problem. 3) A World Economic Forum report exemplifies how improving competitiveness of struggling countries like Portugal, Italy, Greece and Spain (PIGS) will take at least 10 years to overcome.

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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:

1

© Markets & Beyond

http://marketsandbeyond.blogspot.com/
http://www.pcgwm.com/

Source:
The World Economic Forum: The Global Competitiveness Report
http://www.weforum.org/en/initiatives/gcp/Global%20Competitiveness%20Report/inde
x.htm

2

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The eurozone crisis and competitiveness

1. http://marketsandbeyond.blogspot.com/ http://www.pcgwm.com/ 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: 1 © Markets & Beyond

2. http://marketsandbeyond.blogspot.com/ http://www.pcgwm.com/ Source: The World Economic Forum: The Global Competitiveness Report http://www.weforum.org/en/initiatives/gcp/Global%20Competitiveness%20Report/inde x.htm 2

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The eurozone crisis and competitiveness

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