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I seem to have misspoke about Spain, having remembered a graph Jérôme passed aournd a while back (or maybe it was in Krugman's blog) but the statistics about wage growth are pretty starkly different on the periphery than in the core : (see nominal and real wage growth tables).

Greece and Ireland had by far the highest nominal and real wage growth in the past decade relative to other Eurozone countries, with Portugal not far behind. The same is true of the previous decade. Core Europe's wage growth is far lower than the periphery, as the periphery enjoyed a credit-filled boom.

There are multiple solutions to the problem this causes for each of these three country's Current Accounts issues, one of which would be  direct aid through a strong EU to the periphery (obviously not politically palatable) but if there's no underlying productivity growth (and I don't think there was, these were banking and property bubbles largely) there's not rationale for relative wage growth.

The key is to make the top end pay, but unless the EU is strong enough to bite the bullet and provide direct employment aid to the periphery, you either manage deflation, suffer deflation, or engage in inflation, the latter involving default/debt restructuring and likely ejection from the Eurozone....

I for one am still trying to figure out how Greece was allowed in the Eurozone in the first place. In private business, a due diligence failure of that magnitude would be career-ending. I wonder how the ECB and the EC are handling this egregious failure of due diligence...likely, failing someone upwards, as usual.


The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Thu May 6th, 2010 at 10:12:34 AM EST
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