Loss of Competitiveness - Frightening stats!

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From today's WSJ.

http://online.wsj.com/article/SB10001424052748704312104575298371996877284.html?mod=WSJEUROPE_hps_MIDDLETopStories

By PAUL HANNON

LONDON -- Euro-zone policy makers hope to develop a system of early warning signals that will help prevent a recurrence of the currency area's economic crisis.
But those measures have been there all along, and were designed by the euro-zone's architects to warn of growing strains among the unequal economies of the 16-national currency bloc.
Published monthly by the European Central bank since 1999, they are indexes of competitiveness, measured by such factors as inflation rates and unit labor costs.
The idea is to prevent the kind of large current-account deficits that are now present in southern European countries. These deficits have contributed to slow growth, rising unemployment and major fiscal problems in Greece, Portugal and Spain.
A euro-zone member experiencing a rise in wages that wasn't matched by gains in productivity would find it difficult to compete with other members of the zone. Similarly, a member that experienced a surge in inflation would feel the costs of its products compared to those of other members.
Crucially, they wouldn't be able to resort to currency devaluations to regain competitiveness. Only by undertaking deep and politically challenging changes could members regain competitiveness.
ECB officials repeatedly warned that without the signal provided by foreign exchange rates, members might suffer a silent loss of their competitive edge, a process that could eventually lead to wider economic problems.
So in an effort to provide a measure of how individual members were faring, the ECB started to calculate harmonized competitiveness indicators, or HCIs, setting the start of 1999 as their reference point.
What quickly became apparent was that while the German economy was becoming more competitive in terms of costs -- its national measures were falling steadily below the 100 start rate -- most other euro-zone members were becoming less competitive, and some at a rapid rate.
So five years after the launch of the euro, the HCI based on inflation rates showed that the competitiveness of the Greek economy had declined 3.8% from the start of 1999, the competitiveness of the Irish economy 14.3%, the competitiveness of the Portuguese economy 6.2% and the competitiveness of the Spanish economy 7.3%.
The HCI based on unit labor costs told much the same story, except that Germany's competitiveness had improved by 7.4%. Unit costs measure the cost of labor per unit of economic output. A rise in unit labor costs indicates that wages are growing more rapidly than productivity.
And the competitive position of the nations that eventually ended up being at the forefront of the euro zone's fiscal crisis continued to deteriorate.
By October 2009, just before investors began to shun Greece, its HCI based on inflation had worsened by 11%, and its HCI based on labor costs had worsened by 14.1%. Ireland's competitive position based on labor costs had worsened by 14.7%, while Spain's had worsened by 11.7% and Italy's by 11.3%. But Germany's had improved by 13.4%.
The ECB compiles the HCIs monthly and quarterly, and posts them on its Website. But they are tucked away in an obscure corner, and if you didn't know that they're there, you'd be unlikely to come across them.
In sum, from its very inception, euro-zone policy makers were aware that there was a high risk that imbalances could emerge within the currency area that would prove fatal to its survival.
Write to Paul Hannon at paul.hannon@dowjones.com