Latvia could not choose itself to peg or not to peg, it was imposed in underground by the EU. Latvia pegged one year after EE, LT, because doubts about it existed already then. We could be rescued if the lat could REVALUE during massive inflow, as in CZ and PL. This did not happen. The main cause why we can not devalue is the 82% share of EUR loans in LV, similar to EE and LT.

However, regarding the competitiveness of the German economy I would like to support the critical demand-side position of Flassbeck. It is just not normal, according to every macro-economic theory, if a big country as Germany gains competitiveness by extreme long-lasting permanent wage dumping. This works internally in the very hierarchical German society, because the dumping is based on cuts for middle and lower classes. But this is not sustainable in a Union as the EU.

The condition sine non qua is a free trade agreement allowing to export German goods freely, otherwise other countries will profit by imposing custom taxes. This can work for some time if the importing EU countries are somehow compensated and subsidized on the monetary side.

The Germany’s competitiveness is not based on excellent public finances. Germany is violating Stability act frequently. The competitiveness in DE is based on unique effects of mass psychology, and they are not sustainable.

It is not about guilt here, only about sustainability.

I think I got your point. True, German economy is very competitive. But it’s not Germany’s guilt. It’s been the fault of Greece or Latvia. These countries either had euro or peg to euro. This had dramatically increased their money supply from 2001 to 2008, and therefore has been the cause of property price bubble, fast wage growth and thus decline of competitiveness.

You simply shouldn’t have pegged your currency to euro. The Greeks should not have adopted it. Were the lat or the drachma allowed to devalue, both countries could be in much better shape now.

The Germans are not guilty on this case.

Everything you say is true. The real issue, however, is whether Stark is saying this to a German, Greek or European public. The Greek 10-year yield managed to drop around 25 points on the week as did the spread to the bund. In other words, the market’s assessment of this hawkishness was to immediately get long Greek debt – and going the other way when Germany talks tough has been a winning trade throughout the crisis, by the way. If the message he was trying to convey is to be taken literally, the event was an abject failure.

And the true opinion of BUBA was recently communicated by Thilo Sarazzin.

@ Charles Butler: Jürgen Stark is important, not because of whatever post he holds at ECB, but simply because he is German, and as such he speaks for the Bundesbank in these matters. There can be no solution to the EU problems without Germany, which means that BUBA plays a key role. I doubt that Mrs. Merkel will dare to act without BUBA’s consent. The last time a German Chancellor did that (Mr. Kohl and his infamous 1 Ostmark = 1 D-mark), BUBA reacted by being ultra hawkish, which in turn led to two German recessions and the ousting of Mr. Kohl. Warning shots have already been fired through comments from Otmar Issing and Hannes Tietmaier a while back in the German press.

Henrik

Who else on the ECB executive board is elected?

I don’t see any mention in Herr Stark’s comments that the ECB can’t ride to the rescue. It is peculiar, is it not, that the ECB should be commenting on what the EU can and can’t do, but giving so little information about what the ECB itself can and can’t do?

“Is this sarcasm or a typo?”

No, it’s for real. The 0.5% drop followed immediately in the wake of the news. 0.5% may not be an especially large move in the course of a day, but it is an unusually large move in a matter of minutes on the back of a single interview.

You may read this as mere noise, I read it as symptomatic of the fact that financial markets are still extremely nervous about this who is responsible for what issue, they have been since Dubai, and they will continue to be till it is clarified.

I did say “initial reports”, had anyone else come out and backed Stark the situation could – eg – have deteriorated (unlikely), but a whole host of people (including the Greek finance minister) came rushing out to “clarify” the situation (plus a lot of people in central banks could have been pushing buy buttons), and the think calmed down again. But it will all come back, as I say, until the actual situation becomes much, much clearer.

Greece has for decades suffered from corruption and poor fiscal discipline. In the past, this just led to devaluations in the exchange rate – but now that it’s in the Eurozone, Greece cannot devalue.

From the late 90s and much of the 00s, Greece enjoyed some of the highest growth rates in Europe – and now, because it failed to get it’s fiscal house in order when the going was good it is paying the price.

Greece’s problems are self-inflicted. And attempting to place the blame on Germany is preposterous.

In essence, these countries enjoyed the good times and failed to anticipate the impact of being in the eurozone in a (severe) recession. Then again, they were allowed to join in the first place with a mechanism in place to punish excessive deficits that was never really applied since it was unrealistic from the beginning.

Is this sarcasm or a typo? Because the euro drops or rises 0.5% or more almost every other day. Statistical noise.