Economist Flassbeck: Incorrect European policy paves the way for radical parties

Another view on the French local elections

The French productivity is well above that of Germany. (Graphic: Flassbeck Economics)

Originally appeared at DWN, translated by Karin exclusively for SouthFront

The economist Heiner Flassbeck sees in the German wage dumping the seeds for the rise of radical parties in the Euro zone. If this trend continues in Italy in 2018, then the Euro is dead, said Flassbeck.

DWN: Many economists say that the desolate state of the French economy has driven the voters into the arms of FN (Front National). Is that correct?

Heiner Flassbeck: The entire European economy is in a desolate state and France is with other countries on the more poor side of it. We have since 2011 in Europe stagnation – also in Germany. This is a disastrous development, which naturally strengthens radical parties. If there is failure on the European level, nationalism will get stronger.

DWN: You have determined that France has a higher productivity than Germany. Why is this not showing in the labor market?

Heiner Flassbeck: This is due to the low wages in Germany. The monetary union in connection with the wage dumping in Germany has ensured that France’s competitiveness has massively fallen. In France, the labor costs has risen as much as the agreed European inflation target of two per cent. In Germany, however, it remained below – a clear violation of the spirit and the meaning of the monetary union. That was devaluation and an artificial strengthening of the German industry.

DWN: What are the strengths and weaknesses of the French economy?

Heiner Flassbeck: France has a very well established industry, for example in the energy sector, in the chemical industry and some others. The sectors in which France is strong are not as spectacular as the automotive industry – that’s why you don’t immediately notice so much. The problem is that the competitiveness lost through the wage dumping 15 to 20 percent. This is fatal to a highly industrialized area. No economy can survive this without damage. If nothing will be changed the Euro will fail in a relatively short time.

DWN: The association of family businesses also sees a EU failure in the Euro crisis. Do you agree?

Heiner Flassbeck: Of course, this is a failure of the EU. But it is Germany, which dictates a completely wrong economic policy. As it is, they say the wages must be reduced; it should be saved even more. If France lowers wages – as it’s done in Southern Europe – unemployment will rise. This will bring even more voters to the radical parties.

DWN: Is it not the case that the French economy is better than her (German) reputation?

Heiner Flassbeck: Yes, definitely. That’s because of the German interpretation of the Euro crisis. Germany denies his own role. If in Germany the wages not will strongly rise in the coming years, wage increases will be forced by a fragmentation of the Euro zone and a devaluation of the other nations.

DWN: The Jacques Delors Institute calls for structural reforms à la Hartz IV. Can that be the solution?

Heiner Flassbeck: Absolutely not. Something similar would happen as in Germany – and for Europe it would mean more deflation. This nobody really wants. The Institute is afraid to be open and honest and to say what is to blame for the misery: The German wage dumping.

DWN: Is it not the case that in fact Germany is benefiting from the situation in France?

Heiner Flassbeck: Of course. Germany benefits from all the countries of the Euro zone. Unemployment has been successfully exported. In Italy the situation is even more dramatic. In addition, even more radical forces are represented in their politics. There are now very many convinced that Germany is to blame for the crisis. If not countermeasures are taken; this can end up very bad. In France, in 2017 are presidential elections. In Italy, in January 2018 are elections. There is great danger that radical forces will come to power. Then the Euro is dead and Germany will be losing its export markets overnight