Europe has seen the sharpest contraction in output since the end of the second world war. This is accounted for by an investment strike by the private sector. In the EU the fall in gross fixed capital formation (investment) was €565bn of a total loss in output of €611bn.
Yet everywhere the cry has gone up that Europe is uncompetitive and that there is only one solution to this new-found cause of the crisis: cutting wages. Employers\’ organisations are having their own Marie Antoinette moment and ignoring their own refusal to invest. Instead, they argue, wages must be cut and pension entitlements axed, while corporate taxes must be lowered.
You\’ll invest when you think you can make a profit by doing so.
If wages (or compensation) is too high, in your opinion, for you to be able to invest profitably, then you\’ll not invest. And call for wages to be lowered so that profitable investment may be done.
After all, the glowing poster child for how to run an economy is currently Germany. Which has just had a decade of deliberately lowering the workers\’ wages.