Boris Johnson’s has previously made his thoughts known on the euro well known, but his new column for The Telegraph goes further in his criticism, arguing that the single currency has helped Germany create their economic miracle — at everyone else’s cost.
Here’s the example Johnson chooses to illustrate his point:
Let us imagine that there are two factories, producing similar cars, and that one factory is German and one is Italian. Let us suppose that to assemble and spray each unit costs 1,000 euros in both factories — at least to begin with. Over time, however, history teaches us that the German factory will start to reduce unit labour costs. Without compromising quality or reliability, the German factory will start to find ways of speeding the process up. By investing in the skills of the workforce and in high-tech capital equipment, they will find a way of reducing the unit labour cost to 900 euros. At which point, the Italian factory faces a crisis. They can cut costs themselves, but without the gains in productivity – and face the risk that the car will be correspondingly shoddier and that they will be rumbled by the consumer. Or else they must face the awful reality that the more-efficiently produced German machine will start to devour their market.
In the past, Johnson argues, Italy could have devalued their currency to fight German efficiency. Under the euro, there’s no way of doing this.
Johnson notes at the end of his article that we can’t exactly blame Germany for being efficient. In fact, the rest of Europe should be copying them — a similar conclusion reached by Allan Little at the BBC.
Citing an example of Germany’s ability to override EU rules — such as when France and Germany’s debt went over 3% of GDP limit in 2003 — Little finds the problem may be that the Eurozone was too scared to punish its most powerful member.
“Germany is the locomotive of pain for other people’s problems,” Peter Doukas, former Deputy Finance Minister for Greece, told the BBC.
As Little concludes, the only choice for eurozone members in a Europe dominated by Germany is to “Germanize” their economies so they can compete.
Easier said than done, of course.