f1bc0e0346f86ffc0e727f00_tb3538c.jpg

Europe’s Competitiveness Obsession

The EU is now obsessed with closing the competitiveness gap that has emerged between eurozone countries. But this approach risks leading in the wrong direction, because competitiveness is a relative concept: restoring competitiveness in some countries, such as Greece and Spain, would require others (Germany in the first instance) to accept deterioration in theirs.

BRUSSELS – The President of the European Central Bank is said to show at each meeting of the European Council a graph depicting the evolution of relative wage costs across the eurozone’s 16 member countries. This chart shows increasing divergences over the last ten years, with the countries now facing difficulties (Greece, Portugal, and Spain) having lost competitiveness by around 20% relative to Germany. In other words, since 1999, wage costs have increased by about 20% less in Germany than in southern Europe.

The conclusion seems straightforward. The eurozone’s southern European members must reduce their wage costs to claw back the competitiveness that they have lost since adopting the common currency.

Concern about such divergences has also reached the task force headed by European Union President Herman Van Rompuy, which is supposed to devise fundamental reforms to the rules for economic policy coordination within the EU. A key proposal from the task force’s first meeting was to develop competitiveness indicators, and then force member countries to take “remedial action” should the EU find large divergences.

To continue reading, register now.

As a registered user, you can enjoy more PS content every month – for free.

Register

or

Subscribe now for unlimited access to everything PS has to offer.

Support High-Quality Commentary

For more than 25 years, Project Syndicate has been guided by a simple credo: All people deserve access to a broad range of views by the world's foremost leaders and thinkers on the issues, events, and forces shaping their lives. At a time of unprecedented uncertainty, that mission is more important than ever – and we remain committed to fulfilling it.

But there is no doubt that we, like so many other media organizations nowadays, are under growing strain. If you are in a position to support us, please subscribe now.

As a subscriber, you will enjoy unlimited access to our On Point suite of long reads, book reviews, and insider interviews; Big Picture topical collections; Say More contributor interviews; Opinion Has It podcast features; The Year Ahead magazine, the full PS archive, and much more. You will also directly support our mission of delivering the highest-quality commentary on the world's most pressing issues to as wide an audience as possible.

By helping us to build a truly open world of ideas, every PS subscriber makes a real difference. Thank you.

Subscribe Now

https://prosyn.org/LflSNs4