The man widely credited with this rise in positivity is Mario Draghi. When the president of the European Central Bank announced last summer that his institute would do all it took to save the euro, and when the ECB subsequently bought large amounts of government bonds from ailing economies like Greece, Portugal, and Spain, it seemed to convince the financial markets that there was no point in betting on the demise of the common currency.
But critics say the underlying problems are yet to be addressed. The fundamental one is competitiveness. While sharing the convenience of a common currency and common interest rates, there are large differences between the eurozone members in productivity and labor costs.
The latest ranking of best- and worst-performing nations, published by the World Economic Forum last year, put Finland at third place out of 144, Germany at sixth, Portugal at 49th, and Greece at 96th. It is hard to see how austerity measures alone can mitigate the divide, even though wage cuts and reduced pensions have already taken place on a massive scale in Greece, Spain, and Portugal.
Peter Bofinger, economist at Würzburg University and one of the German government’s economic advisers, believes that while reforms in southern European countries are inevitable, Germany, Europe’s most powerful economy, needs to do more to help. In fact, it needs to make itself less competitive.
“We need wage increases of 5 percent and more this year,” he says. “We need higher pensions and higher welfare payouts. Only if Germany gets more expensive, if it loses competitiveness relative to the other eurozone members, we can fix this fundamental flaw in the construction of the eurozone.”