The situation in Athens seems to have calmed down, but former Federal Reserve Chairman Ben Bernanke thinks Europe has an even bigger issue to worry about:
In a blog post on Friday, Bernanke wrote that the failure of the eurozone as a whole is very much related to the “highly asymmetric outcomes” among member nations.
In other words, Bernanke is attributing Europe’s woes to the fact that countries like Germany are benefiting at the expense of the monetary union’s weaker members, like Greece, Spain, and Italy.
Bernanke points to unemployment rates as a clear sign of the disparity in Europe.
Unemployment in the eurozone as a whole is actually up from late 2009/early 2010, when it was at about 10%.
Today, eurozone unemployment stands above 11%, and even passes 13% when excluding Germany.
Meanwhile, Germany’s unemployment rate is less than half of that, at under 5%.
German unemployment is low, in part, because of the country’s strong trade surplus. The trade surplus, in turn, can be attributed to Germany’s use of the euro, which Bernanke argues is weaker than a German mark would be if it still existed today.
Nobody is suggesting that the well-known efficiency and quality of German production are anything other than good things, or that German firms should not strive to compete in export markets.
What is a problem, however, is that Germany has effectively chosen to rely on foreign rather than domestic demand to ensure full employment at home, as shown in its extraordinarily large and persistent trade surplus, currently almost 7.5 per cent of the country’s GDP.
Within a fixed-exchange-rate system like the euro currency area, such persistent imbalances are unhealthy, reducing demand and growth in trading partners and generating potentially destabilizing financial flows. Importantly, Germany’s large trade surplus puts all the burden of adjustment on countries with trade deficits, who must undergo painful deflation of wages and other costs to become more competitive.
What Bernanke is driving at is the question of what the euro is really for. Is it just a way for countries to fix their currencies, or is a federation that will aid members in need?
Many in Europe saw this week’s bailout agreement between Greece and its European creditors as confirmation that Greece’s European partners do not have the interests of the euro in mind, merely their own interests. And if this is how business will be done in Europe, with some members benefitting at the expense of others, some experts have suggested that perhaps Germany — not Greece — ought to consider leaving the euro.
But as Bernanke’s post makes clear, in the wake of a third Greek bailout in five years, the program does not appear to be working. What is needed, it seems, is a new approach from the parties involved and a new conversation about what the euro is trying to accomplish and how to get whatever that is done.