Monday, June 13, 2011

If all Eurozone industry became like the German industry, then ....

I posted the following thoughts at the end my "Germany's competitiveness: Beyond myths and inside the systemics" post on June 8, but I think it is worth posting it separately as well, because it is, IMHO, important food for thought:

I read a lot of commentators, some German, some other EUropean, some from other parts of the world, urging the PIIGS to become (in terms of economic modeling) more like Germany.

My question is the following simple (and maybe dumb) one:

IF

All of the Eurozone moved from production (and export) of simple to complex goods a la Germany, then that would increase up to 300% the volume of such goods produced in the Eurozone (80 x 4 = 320) and 500% in the EU (90 x 6 = 480).

ie

for each German complex good produced by Germany now, there would be 3 more of the same produced in the rest of the Eurozone and 2 more in the rest of the EU. Making the total volume of German type complex goods produced in the EU 6 times the existing one.

THEN

What would be, via the "law" of supply and demand, the effect on the equilibrium price for German+rest EU "complex' goods?

To use a Marketing term, if the rest of the economies of the Eurozone or the EU would produce German type of goods, then there would be cannibalisation in the (EU and world) markets.

Leading of course to much lower prices for these goods.


Food for thought, huh?
Where is the ELSE?

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BRs
Nick

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