Germany puts Europeans under pressure to reform

In an article written for the Project Syndicate and reprinted by the Austrian daily, economist Melvyn Krauss examines how the introduction of the euro has altered the balance between European countries. "By 2006, both German exports and GDP were growing faster than in France and Italy. Before the introduction of the euro, the reform gap between Germany and its larger neighbours would have been no problem for Europe. The currencies of the reform laggards would have depreciated against that of Germany, and there might have been a supportive cut in interest rates as well. This is no longer possible. ... The appropriate level of the euro for the Germans is too high for the French and Italians. The right interest rate for the French and Italians is too low for the Germans. For reform laggards like France, Italy, and Portugal, currency union with an increasingly competitive Germany is forcing an unwelcome choice between revving up their own reforms and permanent stagnation."

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