Internal flexibility

With regard to EMU, the requirement that mechanisms (a system of parts that operate and act together like those of a machine) must exist in the individual participating countries to cushion imbalances or ensure broadly even development compared with the other member states. – If a country’s macroeconomic data deteriorate (worsening of productivity, employment, wages and salaries, terms of trade, burden of public debt, etc.) and its goods are produced at comparatively high prices, i.e. if its competitiveness declines, investors will avoid this country and domestic citizens will switch to another currency. The exchange rate of the problem country’s currency falls. The falling exchange rate acts as a signal to change conditions that led to this situation. – In the EMU there is no such alarm signal, because the EUR is introduced as a common currency in all participating countries. Therefore, the individual members have to develop measures for their country by law and, if necessary, initiate them, which serve a timely correction of critical development in this country. These include, first and foremost, limiting the national debt, waiving luxurious social benefits such as retirement from the age of 58, efficient public authorities (competent authorities), and the introduction of a social security system. This includes competent and efficient organized authorities, especially with regard to tax administration, promotion of labor market flexibility, fostering competition, improving incentives in benefit systems, and public support of research and development of revolutionary inventions. – It has become clear, however, that in many EMU member states such steps have been insufficiently initiated, or even planned, because they are highly unpopular and usually cost politicians votes. Despite the EU treaty’s exclusion of a bailout, the EU ultimately relied on the help of other members – and this is what happened for the first time in the Greek crisis. – Whether a European political union would eliminate these inconsistencies and weaknesses of the current EMU is questionable; in any case, fundamental elements of the treaty would have to be changed. However, a political union can only come into being after many years, if at all, because of the long and difficult constitutional procedure in all participating states. For this reason alone, it is not a suitable means of combating a crisis in EMU. – There is no way around measures to bring the economy into line with common economic developments, i.e. to make it more flexible internally. – See central bank bailouts, bazooka, blame game, buyer of last resort, deficit financing ban, disfunctionality, currency area, one-vote principle,
Eurobonds, common, European Financial Stabilization Facility, European Monetary Union, fundamental error, Europayer, ECB sin, financial solidarity, guarantee, money bomb, money cow, money market operations, money lender of last resort, government
Guaranteed Bond, Government Spreads, Peer Pressure, Italian Method, KaldorHicks Criterion, Wage Policy, Coordinated, Moral Hazard, Plan C, Policy Bracket, Policy Delay, Return Ideology, Shadow State, Government Bond Interest Rate Capping, Central Bank-Influenced, Debt Repayment Pact, European, Safety Net, Global, Single Master Liquidity Conduit, stabilization mechanism, European, stability and growth pact, stability fund, European, stand-by credit, transfer, disguised, transfer union, redistribution, central bank-influenced, debt-productivity linkage, growth-debt fact, historical, currency area, optimal, two-way option.

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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
E-mail address: info@ekrah.com
https://de.wikipedia.org/wiki/Gerhard_Ernst_Merk
https://www.jung-stilling-gesellschaft.de/merk/
https://www.gerhardmerk.de/