Why Higher Wages In Germany Would Be Good For Portugal

One of the reasons for imposing austerity on Portugal is that it should reduce wages in Portugal and reduce the cost of its exports.  Portugal (and other eurozone countries) could export its way out of its economic problems via wage deflation.  Paul Krugman suggests that a better strategy would be for Germany to increase its wages.  The euro would fall in value, due to German inflation, and Portugal's exports would increase as a result.  Germany will not raise its wages so that strategy is not likely to happen.  The point, however, is that German wage inflation works as well as Portuguese wage deflation is supposed to work.  Tyler Cowen, thinks that wage deflation in Portugal is the better strategy even though Portugal does not export much to Germany.  Perhaps that is why he is the head of the Mercatus Center at George Mason University which is funded by the Koch brothers.  Conservatives prefer wage deflation to wage inflation.