Labour cost data released last week provided further evidence that the competitiveness gap between the euro-zone periphery and core may be narrowing. While labour costs were little unchanged or lower than a year earlier in the periphery, German labour costs rose sharply on an annual basis. But as we have long argued, the adjustment is still far from over. Further falls in prices and costs are needed for the periphery to regain full competitiveness, which will increase the real burden of outstanding public and private sector debt, undermining growth prospects.
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