US industrial production has grown at least twice as fast as GDP since the start of the recovery.
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One of the reasons that the eurozone’s peripherals should be willing to put up with austerity is that it’s helping address internal balances and address falls in competitiveness. That’s the story being sold by the politicians at least. But now that the crisis is coming into its fifth year, there is a decent amount of data that allows us to see if those imbalances are indeed being corrected and that lost competitiveness regained.
James Nixon at SocGen has has done some clever number crunching with unit labour costs in the most crisis-hit eurozone countries since 2000, and found that any apparent improvements in competitiveness are likely to be fleeting. Read more
Unable to benefit from currency depreciation, the peripherals have been urged to seek other ways to improve their balance sheets by means such as ‘internal devaluation’ — regaining competitiveness by lowering costs, particularly wages.
One of the criticisms of “internal devaluation” is that it’s a slower method of improving competitiveness than an old fashioned currency devaluation. There are also questions about whether it even works. Read more