Merkel under pressure as calls grow for sea change in economic thinking

CORRECTING the economic imbalances underlying the eurozone’s debt crisis will demand years of austerity from the likes of Italy and Spain.

It could also require a sea change in German economic thinking to accept stronger domestic demand and higher inflation.

Beyond the urgent steps needed to keep the eurozone together, countries on the bloc’s periphery face a daunting task to increase domestic productivity and restore external competitiveness lost since the launch of the single currency by bringing their unit labour costs down closer to German levels.