Forget Cyprus: Low Competitivness and High Unemployment Are the Real Drag

Lots of media space is given to the crisis in Cyprus. The real problem however, is the low competitiveness of Southern Europe. The chart below taken from the FT, displays the low unit labor costs of Germany against the rest of Europe.

Meditereanan countries used to devalue their currency once a while in order to regain competitiveness. After the joining the European Currency Union they no longer have this economic policy option. The result is rising labour costs, lower competitiveness and higher unemployment rates (see chart below):

Looking at the chart above, I do not see any solution of the Euro crisis any time soon!