“Since the birth of the euro, it has been a different story. The crisis in Greece has highlighted the problems that a one-size-fits-all interest rate can cause for countries on the periphery. In the good times, monetary policy is too loose for their needs, leading to asset bubbles, inflationary pressure and the loss of competitiveness.
In the bad times, there are no shock absorbers other than wage cuts and austerity. Devaluation of the currency is not possible and there is no system to transfer resources from rich to poor parts of the union. Without a common social security system, the result is higher unemployment, rising poverty and political disaffection. […]
All this, as Dhaval Joshi of BCA Research has noted, has been possible because the wages of German workers have been squeezed. Amazingly, over the entire history of the single currency, nominal wages in Germany—not adjusted for inflation—have increased by less than they have in Greece, despite the savage wage cuts in the latter since 2010.
Joshi notes that the structural reforms to the German economy in the early 2000s were carried out ostensibly to boost productivity, but that in reality it rose no more quickly than it has in France, where no such reforms have been undertaken. As a result, the profits German companies have been making abroad have been due to the pay cuts swallowed by workers at home.”