Frank Hoffer

During the last decades, labour markets in many countries have been deregulated and trade union strength has declined. Trade liberalization and deregulated financial, product and labour markets created a mutually reinforcing trend towards weaker regulatory provisions. Lower labour market protection and increased precarious employment resulted in a declining wage share and growing inequality. The lack of wage-based aggregate demand that followed from these dysfunctional developments translated into massive export surpluses in some countries and debt-financed consumption in others. The crisis has proved that both trends were unsustainable.

Ronald Janssen

One of the main purposes of the current drive for European economic governance is to transform wages into the main or even single instrument of adjustment under monetary union. Strangely, this idea appears to enjoy a high degree of consensus among both conservative and progressive economists. For the former, extreme wage flexibility including wage cuts and sub-regional deflation is necessary if the rest of the Euro area is to catch up rapidly in competitiveness with Germany. For the latter, the rebalancing of competitive positions is to proceed by setting up some kind of ‘wage planification’ process at the European level in which German wages are to go up while wages outside Germany are going down and stay down for many years to come.