The move to Economic and Monetary Union was a profoundly political act – despite the fact that the underlying rationale was predominantly economic, namely that a single market requires a single currency. Understood in this sense, EMU itself is a "political consequence" of earlier decisions. A "product" of a functionalist approach to European integration.
However, the pass-through of higher wages to domestic price pressures remains muted, it follows that firms are absorbing higher unit labour costs through lower profit margins (Chart 10). While the reasons for this limited pass-through have yet to be fully explained, a contributing factor is the weakness in the manufacturing sector, as reflected by weaker supply chain price pressures compared with the services sector.