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The global decline in the labour income share: is capital the answer to Germany’s current account surplus?

Berger, Ennet, Wolff, Guntram B., (2017), “The global decline in the labour income share: is capital the answer to Germany’s current account surplus?”, Bruegel, 26 April

There are two broad views of adjustment in Europe’s economic and monetary union. The first is that the divergence of competitiveness in the euro area is the fault of the peripheral countries, which were guilty of “losing their competitiveness simply by becoming too expensive” prior to the crisis (Sinn, 2013). This view emphasises the capital inflows into the periphery countries and the resulting unsustainable property booms and other misallocations of capital, which in turn led to price increases and wages well beyond productivity. The second view puts the blame for the pre-crisis divergence primarily on Germany, arguing that German wage moderation triggered the divergence in current accounts and price competitiveness.

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