Europe's monetary union is in a deep crisis. In the context of Greece's debt concernsand emerging problems in other countries, huge current account imbalances have been identified as a major threat. But since the adoption of a single currency, devaluation is no longer available to correct an unsustainable current account deficit. The rules are that a country should use national policies to reduce its deficit.

Now, following years of divergence between unit labour cost and losses in competitiveness in a number of countries, the idea is gaining ground that the country with the biggest surplus, Germany, should help by raising wages in the interests of deficit countries and the community as a whole.

This idea, presented as a panacea for Europe's problems, is so economically erroneous and politically dangerous that it would hardly deserve being taken seriously – were it not for the risk that it might actually prevail. Wages ought to respond to signals from the labour market yet the argument is made that high unemployment strengthens the case for higher wages – to boost demand. This kind of utopian economics is simply wrong.