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Keywords:

  • euro area;
  • crisis;
  • competitiveness;
  • labour market reforms

In addition to unsustainable fiscal policies, the weak competitiveness of southern European countries is contributing to the ongoing crisis in the euro area. However, wages and productivity are only one element of competitiveness and the value of competitive wages is hard to measure. Hard-to-identify non-price competitiveness such as quality, innovation and technology of goods affects overall competitiveness too. Given the lack of information, the necessary level of wage adjustment needs to be negotiated on the market. Governments can support a market based adjustment of competitiveness by liberalising labour markets and by strengthening the business environment.