Maybe Merkel and the ECB Want to Weaken Labor

If someone has a gun and is shooting it repeatedly at another person, we might infer that the shooter wants to kill this person. In this vein, how could it never occur to analysts that the purpose of Chancellor Merkel and the ECB's policy of austerity across Europe is to permanently weaken the power of labor across the continent?

It is hardly a secret that workers can be forced to make concessions on wages and benefits in periods of high unemployment. The power of workers will be further undermined if government supports like pensions and employment protection legislation are also removed. All of this is well-known and widely understood.

Therefore it is remarkable that the class implications of the Merkel-ECB policies never get mentioned in a NYT piece examining the contrasting approaches of Merkel and President Obama to the euro zone crisis. In fact the piece explicitly sends readers in the opposite direction, saying it is "a battle of ideas" in a quote from Almut Möller, a European Union expert at the German Council on Foreign Relations.

In fact the most obvious basis for the difference in the views between President Obama and the Merkel-ECB view is standard Keynesian story that it is in the interest of any individual business owner to have other businesses pay their workers more money. This creates more demand for her products.

In this context, President Obama would be very happy to see a prosperous Europe which would provide a stronger market for U.S. exports right now. However, Chancellor Merkel and the ECB seem more focused on keeping down their own labor costs.

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written by John Emerson, December 11, 2011 8:49 AM

In this vein, how could it never occur to analysts that the purpose of Chancellor Merkel and the ECB's policy of austerity across Europe is to permanently weaken the power of labor across the continent.

How much of the response since 2007 can be explained that way? Hasn't been the default been somewhere between "We shouldn't do anything to fix this problem which will weaken our position against labor, or strengthen the welfare state" and "Every crisis is an opportunity"?

Shock Doctrine
written by Bart, December 11, 2011 9:56 AM

So, Frau Merkel's model is Yeltsin?

Labour loses, but who wins the most?
written by Jens Nielsen, December 12, 2011 4:19 AM

Great to broach the subject of whether the response to the crisis is well-meant but misguided or is actually pursuing different motives than those stated publicly. Dean, could you perhaps expand on the issue please, identifying which sectors stand to gain (and how) from the current response? What is in it for the financial sector and the ultra-rich?

Thanks for a voice of reason in these dark ages, keep up the good work!

Who would be the real winners of the demise of the Euro?
written by Renate , December 12, 2011 1:48 PM

GB and the US are protecting their financial service sector, the backbone of their economies. Unions in the US and GB are almost non existing and if they are they are being attacked by Republican governors. Would Merkel be interested to reduce the middle class at home or see a stronger one in the Anglo-Saxon economies? The social Market economies on the continent are in better shape than GB.

For labor in the US a weakened $$ and stronger Euro would be great. But Merkel wants regulation of the financial sector. Cameron supports the financial sector. Who is fighting whom and for what?

labor markets are key to U.S. and European actions
written by Doyle Saylor, December 12, 2011 5:05 PM

No doubt there are strong tendencies in Europe to attack labor costs. Are these paramount? I tend to see the European situation as a means for the 'Union' to attack national sovereignty over national budgets. In that context wage deflation seems the order of the day. So there is a key component of labor wages in this over all European economic process. However, the sovereignty issue is not what I'd call a Keynesian perspective. In the past war was the instrument of changing national sovereignty whereas now trade agreements like the Eurozone address the same interests. If I thought about this, I'd say the dollar and it's influence has demonstrated with for example Argentina, that national sovereignty was the key element of the current neo-liberal processes. Low wage countries like China have been exempt from the dollar crises in South America. In that sense wage levels do control where the sovereignty crisis happens.

However, that doesn't explain why Germany a high wage country has such leverage in Europe? So I'd guesstimate that a major factor is size of labor markets (in a sovereignty sense) in the current affair over wage levels. So we are really talking about combining labor markets as opposed to pure wage levels.

Counter Revolution - Keynes and the best of economics after him is getting the knife
written by lars jorgensen, December 13, 2011 3:03 AM

It is a very, very interesting comment by Dean.

Living in Denmark nobody is talking about the crucial structural consequences of Merkel's plans for the future of Europe.

It is scary to say the least.

Neo-Darwinism is seriously eating its way into European politics.

Maybe Merkel and the ECB Want to Weaken Labor

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