Two weeks ago (here), I pointed out that there is a dangerous divergence between wage costs in the eurozone and those in countries that maintain a fixed exchange rate with the euro. This week, Eurostat has been publishing new figures showing that the problem is getting bigger instead of smaller.

Hourly labour costs (excluding non-wage costs, which tend to rise more slowly) across the eurozone as a whole rose by 4.1 per cent in the fourth quarter of 2024 compared with the same quarter of the previous year (including non-wage costs, by only 3.7 per cent). The original Eurostat chart shows the values for the individual countries.

While the large western countries generally show relatively small increases close to the average, a group of countries begins with the Netherlands, where wage increases are above 6 per cent. This also includes Austria, where efforts to limit wage momentum in the wake of the temporary price increases in 2021 and 2022 have failed. The next group, starting with Portugal, is even more problematic, with growth rates of more than nine per cent.

Portugal should have learned its lesson from the euro crisis: such a development is completely unsustainable. The Baltic countries have also been burned. Now they are repeating the same mistakes they made in the 2000s. Bulgaria, as an accession candidate with an absolutely fixed exchange rate, should also have an idea of what is in store for it. Croatia, which takes the biscuit with almost 14 per cent, also seems to be unreceptive to reason.

Since we can assume that productivity in these countries is not much higher than in the large Western countries, all the countries that are far to the right of the average will suffer a massive loss of competitiveness. This will be reflected in a loss of market share, which will particularly affect companies that, unlike Western investors there, do not have productivity levels well above the national average. This means that these countries will lose their ability once and for all to establish a domestic industry that can compete in Europe.

Western companies that currently still produce in these countries because of the relatively low wage levels will move as soon as the wage gap with their home countries closes. At this rate of wage growth, this is only a matter of a few years. Further euro crises are therefore inevitable.

The biggest failure is undoubtedly the European Commission, which is simply not fulfilling its clearly defined tasks in the context of country surveillance in the monetary union. The Commission would have to intervene massively in the interests of the countries themselves and make it clear that this drifting apart within the EMU is untenable and must be stopped immediately. The ECB is also remaining silent on this development, although it is clear that the inflation rate it is aiming for is only a fake average and that many small countries within the monetary union have far too high inflation rates. Here, too, there is a ducking of the obvious problem.