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As Germany has shown time and again, real wages can be pushed down without touching the unions. Instead conditions surrounding the labour market (Harz) has been worsened increasing the cost for the individual of unemployment, thus lowering the will to fight for higher wages.

So without touching the unions, the reverse could be implemented. Government could again be acting as employer of last resort (making sure if you can work you have a job). In effect abandoning the current policy of mandatory unemployment. Generous and secure social benefits for those unable to work could be reinstated.

However that does not solve everything. At the same time, EU has a common currency (means no automatic adjustment of productivity), and a common market for capital and labour (no legal barriers for capital and labour to move). Unless the periphery is to be depopulated (which will be rough on the population of periphery and core alike), there needs to be a cash flow to the periphery to compensate for the advantages of the core. This could be in different forms and may or may not include a policy for the periphery to catch up. But it is hard to see without some federal treasury.

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by A swedish kind of death on Fri Dec 24th, 2010 at 06:38:46 AM EST
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