As G8 Assembles, Are Germans Prescribing 40% Wage Cuts For Spain, Ireland, Plus Greek Exit?

By Haydn Shaughnessy

As the G8 begins assembling for the Camp David summit this weekend, the future of the Euro-zone is beginning to look clearer. For Irish, Spanish, Portuguese workers the outlook is grim, with the need for deep wage cuts now being aired. For the Greek is looks like as orderly an exit as possible, as soon as possible.  The EU institutions are already making preparations. The consequences for how business might be conducted in Europe, and for any company dependent on European markets  are unprecedented. But at last, once unspeakable solutions are now out in the open.

For companies that see business becoming humanised and more social, it is time to start thinking of how a more collaborative work culture can be constructed in what looks like a period of deep wage retrenchment or, alternatively, a period where wealthier European countries assume the debts of smaller peripheral ones, with a knock on effect on consumers there. Whichever way it plays out, the G8 will mark the point where unpalatable changes finally find their way onto the plate.

First those wage reductions. In a startling documentary broadcast by the BBC last night (The Greaet Euro Crash), former German Chancellor Gerhard Schroeder set out how Germany had grasped the nettle of global competition and won concessions from labor unions that allowed Germany to be competitive, particularly against the Chinese. Few people think of Germany as a country that has reduced its effective wage rates, but that is Schroeder's claim.

Professor Hans-Werner Sinn of the University of Munich, and a member of the Germany Economic Ministry's advisory board, meanwhile, pointed out that labor costs in Spain and Ireland had increased by 30 â¿¿ 40% more than they had in Germany during the same period. So the inference is that Germany cut its cloth to suit global economic conditions, and reaped the benefit. The PIGS did not.