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Or how those theories actually work? Why cutting budgets and labour "flexiblity" are essential to monetary unions? How is this explained rather plainly?

I suppose the argument goes something like this: for companies to be competitive, salaries cannot rise much faster than productivity, at least not in the long run. As long as all countries have their own currencies, any refusal to moderate wage growth will be dealt with automatically by the weakening of the currency. With this escape valve blocked by a common currency, painful wage deflation is the only way forward when wages have gone too high, and this road will be easier to walk if labour markets are flexible and the labour force is free to migrate within the currency union.

Indeed, I think that this argument does carry a certain weight: Ireland was getting out of its troubles faster than other peripheral economies, as many economic migrants have gone back to whence they came, and the swiftly falling real wages (="flexible" labour market) have pushed down unit-labour costs, increasing competitivity, saving the trade balance and making the bail-out more or less unecessary.

I think I linked a graph from the FT here, showing this, some weeks ago.

</runs away and hides>

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Wed Dec 22nd, 2010 at 05:19:01 PM EST

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