Links: structural reforms and macro-economic resilience
According to Mario Draghi, structural reforms should make the Eurozone economies more flexible, to enable them to recover faster from a crisis. A faster decline of wages should have lead to faster economic recovery. Hmmmm…
1) Without directly attacking this point of view Frances Coppola argues (using Latvia as an example) that high inequality increases the volatility of an economy (via a leverage channel) – implying that structural reforms aimed at lower inequality will reduce the need to recover from crises as they might well be less deep. Look here and here .
2) The same idea is stressed by IMF economists Kumhof and Ranciere
3) While Aidan Regan states that the recent Irish export success is not caused by lower wages but by companies which after 2008 actually increased wages: “Both Finland and Ireland have experienced a rapid decline in the computer manufacturing sectors since 2005. In Finland there has been no replacement in the ICT services sector, creating a serious crisis of their export and employment growth model. This is not the case in Ireland, given that the state has actively nurtured “born on the internet” firms emerging out of Silicon Valley. There was a recognition that competitive success (and attracting inward FDI) is unlikely to occur in those high-tech manufacturing sectors that can produce their goods at a fraction of Irish labour costs, and therefore the strategy was to attract global MNCs in internationally traded services. Whether one likes it or not, the industrial enterprise strategy of Ireland is to develop a close relationship between the state and large foreign owned global tech firms. This deeply embedded role for the state in the international market is the central factor underpinning the Irish economic recovery not austerity. It is the outcome of political choices not the market.”
5) Varoufakis on the endeavours of Syriza to reform the Greek state – thwarted by the Troika. Does the Troika really want reforms – or should Greece just disgorge the cash?