many times earlier the author here reflected on recent pieces by Paul Krugman and he was or is for that matter still right when he points out that Spain just needs to be like Florida and everything is fine: Florida Versus Spain.
or in his earlier pieces where he states that inflation targets just have to be 'rebalanced' in the way that Germany or the 'North' for that matter adjust their inflation figures and the 'South' won''t be forced anymore to dive into deflation in order to keep the average inflation on an acceptable level for the ECB.
When he and others like to address their insights to Germany, which still suffers not only from a stubborn female Chancellor but also from many millions of stubborn voters who aren't 'getting it' either, he can also use the example of Germany's own fund redistribution machine called 'Länderfinanzausgleich'. Strong regions like Bavaria, Baden-Wuerttemberg, Hessen are obliged by law to contribute to the receiving regions such as North Rhine-Westphalia, Bremen or the capital Berlin. If you look upon the Dutch redistribution model where the wealth is actually pumped out of the ground around the rural area of Slochteren to be used by the Dutch state to support other regions of the country. This model is known as 'Dutch disease' where the name indicates that is isn't really the optimum.
All the assumptions are quite right and indeed a possible model IF the objective was to stick with the original 'business model' of the early 1990s where the iron curtain just was tared down and Europe focused mainly on reconstruction of Eastern Europe and later on integrating those belligerent states which formed on the Balkans after the collapse of Yugoslavia. So the EU had a political agenda to build a new Europe with all its current and future member states are also bonded together by a single currency. The second objective was to enhance the basic principle of the EU which was creating wealth by intensifying cross border trade, harmonization of national legislation and improving competitiveness. In order to contribute to that goal it was one measure to abolish the costs and procedures which were connected with cross border payments. So the Euro was one tool to achieve a single market of some +-500 million people. At the time a very promising goal and one has to admit the EU came pretty close to that goal just before the bad luck or 'Lehman Bros.' struck the EU and EMU 2008. Now is not the time to make a case that is was proven a wrong assumption that the existence of the Euro has spared its member states even more misery, because those 10 EU countries still having their own currency managed partially at least even better to overcome the impact of the 2008 blast from across the Atlantic.
Coming back to the 'business model' and the inner European trade which is by now already an 'aging idea' because meanwhile other countries have achieved a transition from '3rd world countries' to emerging markets to real or 'virtual' members of the G8. Brazil just overtook the UK, China's economy just overtook Japan's, BRIC countries, emerging markets are improving and threngthening bilateral trade relations. China is well on its way to even overtake the USA as largest economy of the planet. In some sectors like groceries , smartphones luxury watches and purchasing power they already dominate the USA and according to Mark Weisbrot in The Guardian they will have passed the USA completely already in 2016 ! Some say we (the West) have reached the end of the track, but the author here says we just have to go on constructing new tracks in order to steam ahead !
So the EU business model or Paul Krugman's 'repair instructions' for the common currency area are right when you look at it from this perspective (ivory tower):
but not necessarily anymore when you look from this
vantage point (ISS space station)!
That's the background for coming up with a 'recipe' for creating demand in those regions now not only suffering from the lack of it but even from severe malnutrition, wars, instability etc:
The EIB or why politicians should ask industry/entrepreneurs
It's also more within this authors preference of growth by market opportunities instead of redistribution models which still lack of basic incentives of demand.
Some related articles:
Trading places (The economist)
The hopeful continent: Africa rising (The economist)
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