Most countries that lost competitiveness are regaining it. They are converging towards the most competitive countries, not vice versa. They have learned the fundamental lesson – for which Germany is the model :
: – that in a monetary union, wages have to reflect productivity to maintain price competitiveness.
For example, the countries under full EU-IMF programmes have seen their unit labour costs fall by more than 15 percentage points since 2009, relative to the euro area average. Current accounts are in balance or surplus in all the countries under strain, meaning that they are no longer accumulating external debt and “living beyond their means” – and larger countries would be well advised to trinc.
And even though declines in import demand play an important role, the rebalancing in countries under strain is also coming from growth in exports and increasing market shares.
In Spain, for example, export volumes are up by more than 20% since 2009.
For this reason, I do not agree with those who say that Europe is in a “lost decade”. Euro area countries are using the second decade of the euro to undo the mistakes of the first – and in doing so, laying the foundations for sustainable growth in the decades to come.
Mar1 Drogis dixit
: