Off the Charts: Striving for Productivity, Chasing Germany

New figures released by the European Central Bank indicate that progress is being made, but it is slow.

The figures show that unit labor costs fell 3.3 percent in Greece during the first quarter, and were off 2 percent in Ireland. In Germany, the star economy of the euro zone, unit labor costs fell 0.7 percent.

Those reductions were won at a terrible cost, however. Greece’s economy continues to shrink, while Ireland’s seems to have stopped losing ground but has yet to grow. Unemployment is above 14 percent in Ireland and even higher in Greece.

The accompanying charts show the changes in unit labor costs in Ireland and Greece, as well as in Germany and four other large economies that use the euro — France, Italy, Spain and the Netherlands. The E.C.B. said similar figures for Portugal, the other bailed-out euro country, were not available.

The first set of charts show the changes from the first quarter of 2010, just before the first Greek bailout forced the country to agree to a harsh austerity program, through the first quarter of this year, the latest figures available.

During that period, Greek unit labor costs fell 7 percent, nearly twice as much as those in Germany. Ireland’s costs were down almost 6 percent.

But all the other major countries continued to lose ground to Germany.

The second set of charts shows the changes in unit labor costs since the end of 2000, when Greece joined the euro zone. The figures are astounding. Germany’s unit labor costs declined nearly 7 percent over the period, a remarkable performance. All the other countries had increases, ranging from 11 percent in France to more than double that figure in Ireland.

If there were no euro, other European currencies would almost certainly have lost value against the German mark over the last decade. Instead, Germany’s trade surplus in goods rose sharply, while the rest of the euro zone’s combined trade deficit approximately doubled.

The reconvergence of the economies might be easier if Germany were to accept inflation, but it shows little inclination to do that. Indeed, largely because Germany has been growing at a rapid rate with some signs of inflationary pressures, the E.C.B. has begun to raise interest rates.

Unit labor costs are not the only variable in a country’s trade performance, of course. But they are important. The rest of the euro zone still has a long way to go if it is to regain the competitive position it had only a few years ago.

Floyd Norris comments on finance and the economy in his blog at nytimes.com/norris.

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