ECONOMY

In Brief

Greece should effectively ‘devalue’ via pay, price cuts Greece’s government should engineer a reduction in prices and wages of 10 percent for more than three months to effectively «devalue» without exiting the euro, economist Laurence Kotlikoff said. «Their prices and wages are out of line. Because they are pegged to the euro, they can’t really devalue,» Kotlikoff, an economics professor at Boston University, said in a Bloomberg Television interview yesterday. «One way to deal with this is for the Greek government to tell the public to cut their prices and wages by 10 percent starting immediately and stay there for at least three months.» Greek stocks and bonds tumbled over the past two months on concern that Prime Minister George Papandreou will struggle to cut the European Union’s biggest budget deficit. Euro-region finance ministers this week ordered the nation to prepare new deficit-cutting measures in case it can’t show sufficient progress in reducing the gap by a March 16 progress review. A devaluation by cutting wages and prices has «never been tried before but that’s exactly what happens in a devaluation» so it’s possible to achieve, Kotlikoff said. Bank of England Governor Mervyn King cited Kotlikoff three times to the Treasury Select Committee in the UK Parliament on January 26 in testimony on the banking crisis and financial regulation. (Bloomberg) Survey finds Dutch want Greeks out of eurozone AMSTERDAM (Reuters) – A majority of Dutch people want Greece to leave the euro, Dutch daily De Telegraaf reported yesterday based on a poll it commissioned. The poll among 5,300 Dutch citizens showed some 92 percent felt Greece should leave the euro currency, while more than 90 percent of the respondents were also in favor of the Netherlands and Germany exiting the eurozone and returning to their own currencies, the paper said. Based on the poll, more than 60 percent of respondents were worried about developments in Greece, because banks that have bought Greek debt may run into trouble and cause a new crisis, the paper said. Bigger threat Italy, saddled with the euro region’s second-largest debt, is the «biggest threat» to the economy of the 16-member bloc, according to Nobel Prize-winning economist Robert Mundell. «Italy has got to be worried,» Mundell, a professor at Columbia University, said yesterday in a television interview in New York. «If Italy became a target, then this would create a big problem for the euro. Whatever is being done to Greece, possibly to Portugal and maybe Ireland, has to also save Italy from that problem.» Italian officials have tried to prevent Italy from being lumped together with some of the eurozone’s smaller economies – Portugal, Ireland, Greece and Spain – that have drawn investor concern about their ability to control deficits and debt. Italian Prime Minister Silvio Berlusconi said on February 10 that those nations were doing «much worse» than Italy and that the «markets have given us their faith.» «It would be very difficult if Italy got tarnished with the same problem,» Mundell said, referring to the risk the European Union may need to provide financial assistance to some of its members. «It would be very difficult to bail out Italy.» The Italian economy, Europe’s fourth-biggest, risks falling back into recession after contracting 0.2 percent in the fourth quarter. (Bloomberg)