Two little comments on Matt O’Brien

The main point (if any) is that wonkblog without Ezra Klein is still excellent. Matt O’Brien wrote an excellent post on what’s wrong with Europe. It includes an excellent intro to Krugmanian macro and a description of the problem.

I had two tiny comments. O’Brien discusses “structural reform” well, but accepts the German view that they lead in the field without question. Also he notes that Germany might threaten to leave the Euro.

My comments

2 things. Italy and Spain had “structural reforms” making it easier to fire long before Germany (Italy in 1997). This matters a lot because all 3 reforms grandfathered those who had job security. Germany hadn’t had time to build up a large number of people with insecure jobs. The tardiness of the Schroeder reform does more to explain the difference in employment performance than its existence. I am quite sure that Germans don’t know about the Treu, Suarez and Gonzalez reforms.

2. Why would a German discussion of leaving the Euro be a threat ? Why wouldn’t the remaining Euro block say good buy*, good luck, and good riddance & don’t let the door hit you where das Herrgott split you ? The resurrected Deutschmark would appreciate, so Germany would import more, which is exactly what the rest of Europe needs.

*this was an honest typo, but it actually is the whole point. Right now good buys in Germany are attracting Israeli immigrants (yes really If Germany leaves the Euro, exchange rates will adjust until prices aren’t absurdly low in Germany.