This weekend we explained the real reason Germany isn’t so hot on the ECB bailing out the rest of Europe: It’s done a fantastic job of keeping labour costs contained, with very little wage growth over the past decade.
Workers haven’t seen any wage inflation, but in exchange they have an unemployment rate that’s the envy of the developed world.
As such, any inflation cuts directly into their wages.
In the latest economic outlook for the OECD, there’s this chart, which shows the unit labour cost situation for Germany and the rest of the Eurozone.
As you can see, everyone else in Europe but Germany has seen a big spike in unit labour costs over the last decade.
Of course, if Italy, Portugal, Greece, et. al. are to regain competitiveness, these wages have to come down, which is something that will be difficult to do in the Euro, since the natural way to accomplish this is via currency devaluation. There’s your pickle.