A question on the equations... You say:

The general expression for the zeroth-order income reduction from restoring unit labour cost parity through a wage cut is
[domestic unit labour costs]:[foreign unit labour costs] - 1

In our example that would be 125/100 - 1 = 25%, not 20% right?

The general expression for the income reduction from depreciation to restore total unit cost parity is

(1 - [domestic unit costs]:[foreign unit costs])x[import quota]x[foreign unit costs]:[domestic unit costs]

Do foreign unit costs cancel out here, or are the first unit labor costs and the second total costs...? If the foreign unit costs are smaller than domestic costs this is a negative quantity. Also is there a standard reference for these equations, somewhere I could point to for the Serious people that might condemn the "unseriousness" of the writers credentials

An aside: I have the impression that absolute unit labor costs in Greece are substantially lower already than those in Germany (but where would one find these listed online?), and what is being paraded in the press is the fact that relative labor costs have increased faster in Greece than in Germany since Euro adoption. Thus I think labor costs are reduced to make up for non-labor costs that "can't"... How does that affect the argument if at all...
In fact even than claim, although accurate, is misleading because, as Erik Jones pointed out a year ago in Eurointelligence(in an article I link to here for the umpteenth time, though this time with the permanent link):

What matters in terms of a head-to-head competition is how Greece and Germany compare in the cost of labor per unit of output and not the real compensation of employees.  Moreover, we should look at their performance across the European marketplace as a whole.  By that measure, if we set the year 2000 equal to 100, then by 2009 Greece was at 98 while Germany was at 95.  Germany is still doing better than Greece, but only by a little and both have improved against the rest of Europe.
...If we look at just manufacturing data, the story might be different - and it is.  Using national accounts data for relative real unit labor costs in manufacturing, Greece goes from 100 in the year 2000 to 87 in 2008.  Over the same period, Germany goes from 100 to 90.  It is hard to see how Germany comes off better in the comparison...
......Even if Greece is not suffering in terms of manufacturing, the high real incomes that Greek employers are doling out must surely be hitting the bottom line in the service sector, shouldn't they?  Again, that's hard to see in the data. Total compensation per employee was 53.8 percent in Greece and 57 per cent in Germany...

So where does that leave the discussion? Does it matter?

(I think that large part of the discussion is fictional to begin with, since what was monstrous in these past years in Greece was profits per worker: in that way the bubbly "boom" was for the working people half swallowed up by high inflation and half sent to swiss bank accounts and used to finance yachts, villas and, as its main "productive" outlet, corruption. )

The road of excess leads to the palace of wisdom - William Blake