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Analysis
Spain 'more competitive than France and Italy'

Spain 'more competitive than France and Italy'

Vote of confidence from Trichet for Madrid 

by Nicholas Bray in Paris

Fri 25 Oct 2013

Spain is now more competitive than France and Italy, the No. 2 and 3 economies in the euro area, according to Jean-Claude Trichet, former president of the European Central Bank.

Trichet singles out the Madrid government as launching one of the most successful strategies for economic adjustment to correct earlier imbalances caused by southern European government’s failure to hold down wage increases.

At a meeting with members of France’s Association of Economic and Financial Journalists (AJEF), Trichet warned of rising public debt and high budget deficits and said euro members needed to remain internationally competitive.

‘European governments have a very heavy European and global responsibility. We are the epicentre of a very serious crisis,’ he intones.

Excessive wage increases in some countries hit competitiveness. ‘The crisis is a crisis of the euro area not of the euro.' Germany has worked hard to improve its competitive position, France has been more lax. ‘There will be further crises,’ he predicts, and they will hit those countries and regions that fail to adjust their production and decision-making processes to new realities. ‘We live in a world that is extremely cruel.’ Europe faces a choice between cutting excessive costs and wages, or the prospect of an Argentina-like rout.

While Germany is close to overcoming unemployment, other countries continue to protect labour market insiders. In an environment characterised by rising distrust of public institutions, European governments must win the support of their citizens for the tough budgetary and labour market decisions that lie ahead.

Trichet advocates strengthening the role of the European parliament so it can call national governments to account for their economic and fiscal policies. ‘Fiscal and budgetary decisions lie at the heart of democracy. Countries whose budgetary policies are perceived as destabilising for the euro should be held to democratic account by the European parliament, as the only body elected at a Europe-wide level by universal suffrage.’

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