The flaws in German trade logic

Germany's reluctance to address trade imbalances in Europe is absurd, and there's no prospect of resolving the region's debt crisis until it faces up to that fact.

Europe’s underlying problem is not budget deficits or even unsustainable debt. These are mainly symptoms. The real problem with Europe is the huge divergence in costs between the core and the periphery – in the past decade costs between Germany and some of the peripheral countries have diverged by anywhere from 20 per cent to 40 per cent. This divergence has made the latter uncompetitive and has resulted in the massive trade imbalances within Europe.

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