Europe

GLOBAL INVESTOR 1.14 —
ADJUSTMENT REFORM AND RECOVERY
As noted above, the competitiveness of the periphery countries had
cy’s
existence. Labor costs had shot up substantially, and productivity
growth had not kept up with costs. As a result, unit labor costs
among the EMU countries drifted apart: between 2000 and 2008,
French, Italian and Spanish unit labor costs had risen relative to
Germany’s by 20%, 30% and 35%, respectively. The consequence
was that these economies were affected far more severely by the
global downturn in 2008– 09
within the Eurozone had not yet really erupted. When they did after
2010
was accentuated. Between the trough in the global economy in mid-
2009 and mid-2013, the gap in overall production levels between,
for example, Spain and Germany had widened by a stunning 35%
. In the less cyclical (but far larger) services sectors,
the divergence was less pronounced and therefore the divergence
in per capita income between the north and south over the course of
the crisis was not quite as dramatic. Yet, the massive gap in industrial
production which opened over these years is one measure of
the fact that the economic dominance of Germany within EMU has
been enormously accentuated by the crisis. Even though most
countries have seen more or less clear signs of economic recovery
since mid-2013, this gap will take years to close, if at all.
Industrial production
120
110
100
90
80
70
Source: Datastream, Credit Suisse
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Germany France Italy Spain Greece Portugal Netherlands
Eurozone
EMU countries
crisis led to a disruption and fragmentation of
Common standards and regulation, com mon
would not lead to renewed fragmentation.
Agreement in principle to push ahead with
The ECB’s new building in Frankfurt is currently under construction.
SSMECB
SRM
deposit insurance scheme that would pool
runs do not occur. The SSM is to control and
enforce adherence to rules, regulations and
SRM is to ensure
own feet are wound down in a timely way and
said, the SRM
EUR 50 billion at its disposal for the recapital
ESM
SRM. It was also
moral hazard, it could lead to further delays
for EMU
accelerate the cleanup. In the long run,
economic growth.