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Richmans' Trade and Taxes Blog
European Right May End the Southern European Depression
In August 2012, we made the case (Deficit Spending Doesn't Work; Balancing Trade Does) that the trade deficit countries of the Eurozone were locked in the trade-deficit caused depressions predicted by John Maynard Keynes about 80 years ago in his The General Theory of Employment, Interest and Money. He argued:
The following graph, which we published back then, illustrated the relationship between trade balances (current account balances) and unemployment rates. It showed that those countries with trade deficits have high unemployment rates and those with trade surpluses have low unemployment rates:
Now, a little over a year later, the same five countries still have high trade deficits, and their unemployment rates have all gone up, as shown in the table below:
In contrast, the trade surplus countries of the Eurozone are doing quite well -- Germany, especially. Its unemployment rate is down to 5.2% today from 5.7% in 2012. If the Eurozone were truly integrated, as the United States is integrated, enough people would migrate from the depressed South to the prosperous North to even things out. But the current European migrations are not reducing southern European unemployment rates.
It seems obvious that these five countries should leave the Eurozone in order to revive their economies. Once out, their currencies and the international value of their wages would fall to trade-balancing levels and they would start getting investment in their industries. They would prosper and their unemployment rates would shrink.
But only those on the right of the political spectrum are calling for a breakup of the Eurozone, And they are going even further. They are calling for the breakup of the European Union. This from The Telegraph:
They are opposed by those who are internationalist in their outlook:
Those on the European right have a solution which would restore prosperity to their countries. Meanwhile, the elites of these countries have become so blinded by internationalism that they can offer nothing better than perpetual depression.
Journal of Economic Literature:
Atlantic Economic Journal: