Wages and Wage-Bargaining Institutions in the Emu : A Survey of the Issues

A perceived need to increase nominal wage flexibility as a substitute for domestic monetary policy and a tendency to less wage moderation are likely to promote bargaining co-ordination and social pacts in the EMU. But such co-ordination is not likely to be sustainable in the long run, as it conflicts with other forces working in the direction of decentralization and deunionisation. Although monetary unification will strengthen the incentives for higher-level transnational co-ordination of wage bargaining, such a development is improbable because of the co-ordination costs involved. If transnational co-ordination develops, it is most likely to occur within multinational firms.Wage bargaining, co-ordination, monetary union

Wages and wage-bargaining institutions in the EMU – a survey of the issues

The paper distinguishes between the impact of the EMU on nominal wage flexibility and on equilibrium real wage and unemployment levels. A perceived need to increase nominal wage flexibility as a substitute for domestic monetary policy and a tendency to less real wage moderation in the EMU are likely to promote informal bargaining co-ordination and social pacts in the medium run. But such co-ordination is not likely to be sustainable in the long run, as it conflicts with other forces working in the direction of decentralization and deunionisation. This could lead to more government intervention in wage setting during a transitional period. Although monetary unification will strengthen the incentives for higher-level transnational co-ordination of wage bargaining, such a development is improbable in view of the co-ordination costs involved. If transnational co-ordination develops, it is most likely to occur within multinational firms.wage; bargaining; EMU

"On the 'Burden' of German Unification The Economic Consequences of Messrs. Waigel and Tietmeyer"

This paper investigates the causes of western Germany's remarkably poor performance since 1992. The paper challenges the view that the poor record of the nineties, particularly the marked deterioration in public finances since unification, might be largely attributable to unification. Instead, the analysis highlights the role of ill-timed and overly ambitious fiscal consolidation in conjunction with tight monetary policies of an exceptional length and degree. The issue of fiscal sustainability and Germany's fiscal and monetary policies are assessed both in the light of economic theory and in comparison to the best practices of other more successful countries. The analysis concludes that Germany's dismal record of the nineties must not be seen as a direct and apparently inevitable result of unification. Rather, the record arose as a perfectly unnecessary consequence of unsound macro demand policies conducted under the Bundesbank's dictate in response to it, policies that caused the severe and protracted de-stabilization of western Germany in the first place.

On the 'Burden' of German Unification: The Economic Consequences of Messrs. Waigel and Tietmeyer

This paper investigates the causes of western Germany's remarkably poor performance since 1992. The paper challenges the view that the poor record of the nineties, particularly the marked deterioration in public finances since unification, might be largely attributable to unification. Instead, the analysis highlights the role of ill-timed and overly ambitious fiscal consolidation in conjunction with tight monetary policies of an exceptional length and degree. The issue of fiscal sustainability and Germany's fiscal and monetary policies are assessed both in the light of economic theory and in comparison to the best practices of other more successful countries. The analysis concludes that Germany's dismal record of the nineties must not be seen as a direct and apparently inevitable result of unification. Rather, the record arose as a perfectly unnecessary consequence of unsound macro demand policies conducted under the Bundesbank's dictate in response to it, policies that caused the severe and protracted de-stabilization of western Germany in the first place.

"Pushing Germany Off the Cliff Edge"

Germany's fiscal crisis cannot be attributed to unification per se; it arose as a consequence of ill-guided macroeconomic policies pursued in response to that event. Many structural problems that popped up along the way were mere symptoms of persistent macroeconomic mismanagement and protracted stagnation. Since Germany provided the blueprint for Europe's stability-oriented macroeconomic policy regime, the risk is that the "German disease" is spreading throughout the regime and, potentially, beyond Europe.

"Explaining the September 1992 ERM Crisis: The Maastricht Bargain and Domestic Politics in Germany, France and Great Britain"

At the time of the September 1992 crisis, the conventional wisdom held in the ERM was due to an unfortunate contuence of exceptional circumstances -- the shock of German reunification, a debt-driven recession in Britain, and the uncertainties caused by the Danish and French referenda on Maastricht. This paper points to systemic factors at both the EC and domestic levels in explaining the September crisis. At the Community level, it is argued that the ERM was the victim of an underlying structural flaw in the Maastricht 3-stage plan for EMU. Intergovemmental bargaining, reflecting the differing national preferences of Germany and France in particular, produced an untenable compromise with potentially chaotic consequences: the matching of demanding economic convergence criteria with a strict timetable for their fulfillment, upon commencement of Stage II of the EMU process set for January 1994. Far from being epiphenomenal, this bargain was only the latest manifestation of an ongoing debate between "economist" and monetarist" approaches to monetary integration, tracing back to the early 1970s. and I argue that the "framing effects" of the Stage II criteria fundamentally altered the nature of economic discourse at Stage I, beginning in 1990. Specific reference numbers for debt ratios and relative and interest rate targets emphasized economic divergence in countries with clearly overvalued currencies, and invited markets to test the strength of govemments' political commitments to their exchange rate pegs. The second component of my explanation of the September crisis lies at the domestic level. Even though strict convergence criteria and timetables provided a severe test of the credibility of members' European commitments, it was not a foregone conclusion that the Maastricht bargain would result in turbulence on the currency markets. A margin of maneuver was left to the member governments, through the demonstration of a willingness to take painful measures, such as fiscal and wage restraint or timely interest rate hikes, to defend the ERM commitment

Germany's Slump Explaining the Unemployment Crisis of the 1990s

According to a widespread view, Germany's unemployment crisis is caused by rigid labour markets, low profitability and increasing international competition. We argue that this view does not provide a convincing explanation for the dramatic rise in Germany's unemployment rate since 1989, first because no distinction is drawn between the situation in the Eastern part of Germany and that in the Western part of Germany, and second because supply-side conditions in the Western part of Germany have not generally deteriorated. We argue that Germany's slump is the result of a series of adverse supply and demand shocks since unification. Supply shocks dominated in the East, demand shocks in the West. These shocks were mainly policy-induced. The adoption of an extremely overvalued exchange rate and rapid wage increases in East Germany magnified the general problems of transition, resulting in a loss of employment of more than a third and a sustained structural weakness of its economy. The wage explosion was made possible by the government's failure to create a proper institutional framework for wage negotiations. The unification shock to the East added at least 2.5 percentage points to Germany's overall unemployment rate, as measured by the OECD definition. We attribute some 1.5 to 2.5 percentage points of the present unemployment rate to the weak economic growth of the last several years and the impact of the increasing tax wedge on the wage level. Weak growth has been largely the consequence of uncoordinated, contradictory and procyclical macroeconomic policies that have been adopted since unification, while the increasing tax wedge has been mostly driven by the decision of the government to finance unification partly through the social security system. Econometric evidence suggests a structural break in aggregate wage-setting in West Germany, with increased nominal flexibility in recent years and insignificant persistent effects since the 1980s. Hence, aggregate wage setting in the Western part of Germany is highly responsive to unemployment, while in the Eastern part, it is not.German economy 1989-97, unemployment, unification

Maastricht: A dead end of European integration?

Unlike previous steps in West European integration, the Treaty of Maastricht contains hardly any of the liberal elements which had so far kept the centralizing and bureaucratic features of the EC in check. The treaty embodies a vision of a uniform EC, to be modelled along the lines of an interventionist nation state. • Maastricht is the culmination of an integration strategy which was designed for a small number of West European countries. At least since the fall of the Berlin wall, this inward-looking approach has been wrong for Western Europe. With respect to a European integration that goes beyond the Western half of the continent, Maastricht leads into a dead end. The interventionist provisions of Maastricht, the harmonisation approach to the completion of the single market and the general strengthening of the common redistributive policies are barriers to an enlargement of the EC. This runs directly counter to the overriding task of European policy for the coming years: the re-integration of the European post-communist countries into the European mainstream. The attempt to pursue the two separate goals of economic integration and political unification within a single and uniform institution, the EC, is at the root of the major problems of European integration. The frequent blurring of economics and politics makes for bad economics and bad politics at the same time: It strengthens the EC's bias towards interventionist and politicized solutions to economic problems. It also impairs a close and effective political cooperation between the core countries of the EC because other members are obliged to participate even if they are merely interested in a common market. • To reconcile the parallel processes of economic widening and political deepening, European integration needs to be re-defined along classical liberal lines. Ideally , Europe should introduce a clear separation between politics and economics so that political goals such as an ever-closer Franco-German cooperation or the prevention of Serbian-style aggressions could be pursued effectively in a suitable political club, whereas economic integration could progress in a broader economic club. • If the EC is to become deeper and wider without burdening itself with an ever-greater potential for internal conflicts, it will have to concentrate its common activities on fewer and more essential tasks. It will have to put less emphasis on harmonisation and economic interventionism, scale down its harmful and divisive redistributive activities and weaken the link between economic integration and political cooperation. • In the Treaty of Maastricht, the subsidiarity principle is formulated in such general terms as to be almost useless. The principle needs to be clarified along liberal lines. To serve as an effective safeguard against excessive centralisation, it should then be elevated to a constitutional level so that it takes precedence over all existing and future Community legislation. --

A Correspondence Theory of Objects? On Kant's Notions of Object, Truth, and Actuality

Ernst Cassirer claimed that Kant's notion of actual object presupposes the notion of truth. Therefore, Kant cannot define truth as the correspondence of a judgment with an actual object. In this paper, I discuss the relations between Kant's notions of truth, object, and actuality. I argue that Kant's notion of actual object does not presuppose the notion of truth. I conclude that Kant can define truth as the correspondence of a judgment with an actual object

Macroeconomic stabilization with a common currency: Does European Monetary Unification create a need for fiscal insurance of federalism?

The implications of monetary unification for fiscal policies are discussed. The roles of nominal exchange rate flexibility in the presence of asymmetric national shocks and nominal price rigidities as an automatic stabilizer and source of disturbances to real economic performance are reviewed. Two main themes are considered. The first is whether a system of fiscal insurance across member states qualitatively replicates the effects of autonomous monetary policy instruments when exchange rates are permanently fixed. It is argued that while fiscal insurance schemes increase the instruments available to fiscal authorities to influence resource allocation, they do not augment existing fiscal instruments in a manner that replicates monetary policy under long-run monetary neutrality in an overlapping generations economy. Restrictions imposed on national fiscal instruments as a condition of monetary unification may give rise to a need for fiscal insurance to replace their role as stabilizers. The second theme addresses whether political unification is a necessary logical conclusion of the usefulness of fiscal insurance scheme. The argument that sustainable insurance arrangements can be devised without foregoing national sovereignty over fiscal policymaking is discussed. --monetary union,exchange rate regimes,fiscal insurance,fiscal policy coordination