The resulting domestic boom and existing labour market rigidities led to large wage increases well in excess of productivity growth, triggering a loss in price competitiveness and thereby impairing export performance. Current account deficits were therefore ultimately a symptom of countries living beyond their means.
The deficits will only decline if ambitious and often painful adjustments are undertaken that bring these economies back on a sustainable track. What about Germany? At first sight, Germany’s gain in price competitiveness since monetary union seems quite large.