Shameless boasting!

 

Please allow me to boast shamelessly today. If you read yesterday´s post, before President Obama became the 44^th in our history, I sort of hinted that the Euro was a mistake, and certainly not such a good idea if we place our hopes in it.

 

Now, today I wake up to find a column by Paul Krugman, (yes that one!) saying the same thing about Spain, very close to me. (http://krugman.blogs.nytimes.com/) .

 

Please understand this is the first time ever, that I have actually thought and written about something which agrees with what an Economist like Mr. Krugman believes.

 

What he says, and I only hinted, is that economies of the  likes of Spain, Ireland, Greece and Italy need, desperately, to become more competitive. Since the Euro zone discards devaluation, the only other solution is to drastically reduce salaries. So, we will have to face that indebtness is only part of our predicament in Europe. Competitiveness is a lot more crucial in these times.

 

That is what I called yesterday in my post, having to pay for the party we have had for these past years when we all thought we were rich people, with lots of money to spend.

 

The problem is that in a Socialist environment like in most of Europe, once you have obtained something by whatever means ( at the beginning it was through revolution now it is called “ social benefits”) you can never, by principle, go back. They become “ Human Rights” with ease and are no longer open for debate. At least that is the principle that European Socialists uphold. That is why they have this obsession with spending their way out of recession, thus worsening the problem they want to solve in the medium run.

 

However they don’t really have to care that much, because the investment in infrastructure they so loudly proclaim as the solution to most of our current problems, is bound to create a few jobs for workers coming from the housing sector and low level manufacturing sectors. But those are going to be more prone to vote for the Left anyway, whereas in the services sectors, at the very least hiring’s are coming to are halt, and layoffs, though still relatively limited, may grow in the next few months. But they happen to have fewer voters amongst these citizens anyway.

 

Who knows, if in Europe we keep down this road for long enough through this crisis and recession it may well be that Socialism will disappear once again from the political map. For a couple of decades at least. This is what happened after the crisis of the 70s in the UK with the coming to power of Thatcher and in the US with Ronald Reagan. Sort of a vaccination.

 

Just to add a little bit of spice to the whole issue of flexibility of the different developed economies, in his recent analysis, Andrew Garthwaite, Global Strategist at Credit Suisse, ranks 44 countries regarding their flexibility to adjust to cost reduction. It is no surprise to see that the most flexible country and therefore the one with the highest probability to regain its competitive status is the USA. Perhaps it is no surprise either to see that the last, number 44, is Spain. It ranks as the least flexible economy regarding labor costs. Therefore, it has the least chance to be able to regain competitiveness in a limited period of time, if ever.

 

There are worse examples and the IMF is all over them in the European Union. Take Hungary and Latvia for example.

 

But also take the differences between President Obama´s constant praise of his country and his people and the capacity we Americans have to work harder and come out of the crisis stronger than ever, and the small talk, yes small talk of some leaders who refuse to go to their Parliaments and prefer talk shows and You Tube videos to ask their countrymen to “ shop more intensely in this traditional sales month!!!”

 

In any case, I digress. The main purpose of this post was to share my pride at having got it “right” this time and to go along with  Krugman, an American Liberal, from someone like me who certainly is not one of those.

 

The fact is we are, at some time, going to have to tackle the competitiveness problem head-on. And without the possibility of devaluation, and politicians not wanting to accept that salaries and standard of living is going to have to come down substantially ( the IMF suggest a 5% cut in the public sectors of a few European countries), the only other way economists can think off is via exports.

 

But is this  a sensible thing to propose in an environment where manufacturing has being decreasing for decades, and these countries owe most of their GDP to the housing sector and services? I somehow don’t think so.