The South African Civil Society Information Service

Eurozone Crisis: Class Warfare and Beggar Thy Neighbour

14 Dec 2011

The problem in Europe has very little to do with Greece says Dr. Heiner Flassbeck (Director, Division on Globalization and Development Strategies, UNCTAD), it has much more to do with Germany, he contends, that deviated substantially from the inflation target set by the European Economic and Monetary Union.

The root of the Eurozone crisis is not a violation of rules of fiscal discipline or of different degrees of public debt in the Eurozone, the core of the crisis is the divergence of wage development. Due to German wage cutting where wages stayed below productivity, Germany started a beggar-thy-neighbour experiment.

Unit labour costs diverged in the last decade, they did not follow the commonly agreed inflation target in Europe. Germany went below that target by a very wide margin which has led to an overall gap in competitiveness in the Eurozone with Germany coming out the clear winner.

The big battle is still the battle between labour and capital, argues Flassbeck, as he elaborates on the nature of the eurozone crisis.

For an illuminating background talk by Flassbeck, which further clarifies the Eurozone crisis, please click here.

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