The fragment of the US blogosphere that pays any attention to Europe is still full of gloom about the prospects for the Eurozone. See for instance Kevin Drum. But here’s a ray of light from the very experienced insider Gavyn Davies, blogging in the FT:
The good news is that Spain has in fact improved its competitiveness markedly in recent years, as a result of the reductions in labour costs which have accompanied the recession and structural reforms in the labour market:
The chart actually understates the improvement. Spain itself is part of the Euro average. So are the other countries in trouble: Greek and Irish labour costs have also shrunk, and Italian ones have plateaued. If you look at Spanish labour costs relative to the trade-surplus Euro core (France, Germany, Netherlands, etc) the improvement is even sharper.
You can get all the data series from the ECB here to play with. But this simple table makes the main point:
Of course I’ve no reason to think that 2005 represented something like a long-term equilibrium. But then again, Davies doesn’t explain why he takes 2000 as the base, except that the Spanish series begins then. The take-home point is that Spanish labour costs are converging quite rapidly with German ones: by 10 percentage points in 5 years.
You can’t envy Mario Draghi. His job is to enforce a cruel recession on Spain and the other troubled countries while provoking a small inflationary boom in France and Germany, and without infuriating anybody beyond endurance. He’s not doing too badly.