Wages have to go down for them to become competitive again.

So, say, 7% inflation in the Eurozone with frozen nominal wages in the periphery and stable real wages in Germany might fix some of the problem in 3 to 5 years.

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010

Wages have risen from a very low level to somewhere below EU averages, generally.

Or does competiveness require keeping the periphery at third world levels?

The full recommendation was:

There is nothing wrong with the € that can't be fixed with a round of sovereign defaults, revoking the Growth and Stability Pact German Suicide Pact and raising the inflation target to 8 % plus your country's intra-€-zone balance of payments surplus relative to GDP.

If you only do one of the three, you don't fix the problem. If you only do two of the three, you don't fix the problem. You have to do all three to fix the problem.

- Jake

Friends come and go. Enemies accumulate.

Then I remembered that wages have been going up far faster than productivity in the peripheral countries.

A better comparison would be real wage rates versus Cost of Living arranged by demographics.  Not only will tell you the levels of consumer discretionary income it will indicate if wage levels are (net/net) falling, rising, or staying the same.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

Based on increases to real wage increases during 2007 (3.9%), pay increases in Greece were the highest of the countries of the EU15. Prior to the 2007 increase, there had been four years during which the average annual increase in Greece was around 3%. These big increases, by international standards, in the average real wage in Greece were fully offset by increases in labour productivity, leaving unit labour costs stable in real terms at 2000 levels.

In the private sector during the 2000-2007 period, there was a cumulative decrease of 1.2% in real unit labour costs. Average real wages increased more slowly than average labour productivity, which left companies with leeway to benefit from higher labour productivity. The effect of this development was that at the end of 2007 real wages in the private sector had increased by 27% over the 2000-2007 period, while productivity increased by 36.5%. Thus, there was a benefit to companies of around 7% in unit labour costs in real terms.

For the year 2007, Greece was in second to last place as regards the level of gross wages in € (net wages plus employee contributions). In Greece, average monthly earnings in 2006 amounted to €1,668 for full-time employees, compared to an average of €2,366 in the other countries of the EU15...

... Whereas monthly labour costs in Greece were 83% of the comparable mean costs in the EU15 (in purchasing power parities), labour productivity in Greece stood at 91% of the European average.

In recent years unit labour cost in Greece has become the lowest in the EU15. This development relates to the fact that in Greece labour productivity increased substantially in 1996-2004 and increased in the range of 1.7%-2.7% a year during the four years from 2005 to 2008.

AFAICS The problem with this analysis is that it does not take into account the very high (comparatively speaking) inflation during this period, which means that "real" wages in PP were not what counted. However high inflation in Greece was due to vast monopolies in many sectors of the economy, that went practically unchecked.

Note also that even during the period 2000-2009 (that is, including the crash in productivity of 2007-2009) unit labor costs in Greece had indeed grown compared to Germany, but in fact fell compared to the EU average, and in manufacturing they were below German ULC as well. I've linked to Erik Jones's article before, but I'll quote him again:

...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.
...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...

However the result of this imposed austerity is to drop wages to average purchasing power that Greeks had in 1980 or something. And to push that through the ECB is demanding circumvention of collective bargaining and lowering the minimum wage from 700 to 590 Euros (possibly below that in "exceptional cases").

I do think that Greece leaving the Euro would be a disaster, however if this madness is kept up (we're heading for a -4,5% recession at least this year and - -3% next year - and these are a slight negative correction on the IMF's numbers, so they're probably idiotically optimistic - with inflation running at close to 6% this year) this disaster might turn out to be the lesser evil compared with the ECB / IMF intensive thirdworldization programme.

Sorry about this impossibly long reply. I just want to kill the meme that somehow in Greece workers were benefiting from unreasonable pay-hikes this past decade. This is not the case: note that these alleged pay increases came with increasing hours worked and do not apply to the black or gray economy...

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

But I figured it is applicable to any member that wants to keep their options open.

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