European Politico-economics QA Mega-thread - Page 63

That wont reduce the deficit...its just a way to redistribute income. To reduce the deficit you need to cut government spending and/or raise revenue and most income tax increases on the rich produce only modest revenue. The reason Europe successfully taxes such a larger % of its GDP compared to the USA is that they have much larger consumption taxes.

Eastern Europe is fine, for now. The common currency only becomes a "problem" if you get into deep debt. Its an advantage as long as you aren't in a recession where deleveraging needs to be the country's top priority.

(Reuters) - An inflation-busting wage deal for Germany's biggest labor union agreed on Tuesday looks set to boost household spending this year after consumer activity propelled strong growth in Europe's largest economy at the end of 2014.

With record-high employment and rising wages, consumers are providing the main impetus for a traditionally export-reliant economy. Private consumption grew by 0.8 percent in the fourth quarter of 2014, matching its sharpest rises in three years.

Germany is under pressure to increase wages and invest more to help reduce economic imbalances and boost the flagging euro zone economy. Fourth-quarter gross domestic product (GDP) data suggested this is starting to happen.

The Statistics Office confirmed an earlier flash estimate that the economy grew 0.7 percent at the end of last year.

"That sets us up really well for this year and it means that the prospects for a solid 2015 growth rate are good," said BayernLB economist Stefan Kipar, adding that he expected 1.7 percent growth this year but it could be closer to 2 percent.

Robust end-year growth came after Germany narrowly avoided a recession in the middle of 2014 because of weakness in the euro zone and uncertainty stemming from the Ukraine crisis.

Domestic demand contributed 0.5 percentage points to growth, gross capital investment 0.2 percentage points and foreign trade 0.2 points. Gross capital investment levels, which plunged in the middle of last year, bounced back to expand 1.2 percent, with plant, equipment and construction spending increasing.

The German government expects the economy, which expanded by 1.6 percent overall last year, to grow by 1.5 percent this year, helped by a weaker euro and lower oil prices.

Consumer morale is at its highest in more than 13 years and after trade union IG Metall agreed on Tuesday to a 3.4 percent wage increase for one year from April for the southwest region, plus a one-off payment of 150 euros, there is no sign of that abating. IG Metall said the deal would help boost consumption.

Agreements in this pilot region traditionally serve as a template for the 3.7 million workers whom the union represents nationwide. The increase is much higher than Germany's 2014 inflation rate of 0.9 percent.

"Today's IG Metall deal suggests that newly negotiated deals may be firm this year and that this will keep negotiated pay overall in the economy at 3 percent," said Greg Fuzesi, an economist at J.P.Morgan.

(Reuters) - Greece has promised not to roll back any ongoing or completed privatizations and ensure that any state spending to address a "humanitarian crisis" does not hurt its budget, according to a document containing its reform plans seen by Reuters on Tuesday.

The list of reforms aims to offer compromises on major issues such as labor reforms and social spending to satisfy both European partners funding the country and Greek voters who voted in a left-wing government to end years of rigid austerity.

Greece needed to present its plans as a condition for extending its bailout program for four months in a deal struck with euro zone partners on Friday.

On the issue of minimum wages, for example, Prime Minister Alexis Tsipras's government climbed down from election pledges to raise the level immediately. Instead it said it would phase in collective bargaining with a view to raising minimum wages over time and that any changes would be agreed with partners.

Greece also said it would reform the public sector wage system in a way that would not reduce pay further but would ensure that the overall public wage bill does not rise.

Athens also committed to consolidating pension funds to achieve savings, and eliminate loopholes and incentives for early retirement - in an apparent effort to find a compromise between the government's objective of avoiding any further pension cuts as previously demanded by EU and IMF inspectors.

The agreement permits Greece to lower previously agreed upon targets on a primary budget surplus, which doesn’t include interest payments on debt. That could give Tsipras some room to at least come good on some pre-election pledges.

In return, though, the Greek government will refrain from unilateral action that may risk budget goals and not annul most economic reforms included in the bailout agreements.

“The agreement includes several concessions by the Greek side, but it also enables the government to save face internally,” analysts at Athens-based Eurobank Equities, including Nikos Koskoletos, wrote in a note to clients dated Feb. 24. “The agreement does not address the coverage of Greece’s financing needs, especially in the context of the present tight situation as regards available cash buffers.”

But praising Germany's superior industries/companies/products is missing the forest for the trees. In simple terms, Germany has been ignoring basic principles of comparative advantage, and is just beating everyone in every category because it has an absolute advantage in almost everything compared to its neighbors. And even when Germany's end product don't have a quality advantage, they have a price advantage because it's cheaper than it should be. Wages need to go up so the cost of German products go up so Germany isn't able to produce everything and crush its neighbors with higher quality/artificially cheaper products. That's why its trade surplus is killing the eurozone.