This initiative was led by the euro area’s largest economies. The ECB voiced its “grave concerns” at the time. Governments had not used the more benign years to put their fiscal houses in order. I now see that many acknowledge that the weakening of the Pact was a serious misjudgement. The crisis has given us an opportunity.
The stronger increase in unit labour costs in private sector services relative to the manufacturing sector has therefore been largely driven by the relative weakness of labour productivity growth in those services in the euro area. Inflation differentials across sectors and countries have of course a number of causes and cannot entirely be attributed to productivity gaps.