Summary for non-specialists(65 kB)   

As the uncertainty relating to the sovereign debt crisis in some Euro Area Member States continued over the last two years, the extent and potential consequences of the spillovers between euro area Member States' economic, financial and budgetary situations has become increasingly evident.

Assessing the implications of wage developments for the build-up and correction of macroeconomic imbalances is a key analytical foundation of In Depth Reviews (IDRs). Such an assessment has to determine whether growth in labour costs is compatible with orderly developments in price competitiveness or with standard responses to economic fundamentals. This paper presents two benchmarks to this end: the first is based on wage growth consistent with constant price competitiveness; the second assumes that wage growth is consistent with changes in economic fundamentals (changes in labour productivity, unemployment and inflation).