The Eurozone Unemployment Rate Divergence

This is a theme I’ve been discussing for a number of years now – the way the design of the Euro most benefits the current account surplus nations (primarily Germany) and hurts the current account deficit nations.  The commentary below is from a recent Albert Edwards note out of Societe Generale.

As you can see, there’s an unbelievable divergence in the unemployment rate in Germany when compared to the rest of Europe.  That’s not surprising given the fact that Germany can continue to run a substantial current account surplus as the single currency keeps them quite competitive with other nations, but sucks the life out of the current account deficit countries who have no floating exchange rate or internal rebalancing mechanism.

Here’s more from Edwards:

“Most economic analysis concludes, probably correctly, how much more costly it would be for either a creditor or debtor nation to leave the eurozone system compared to struggling on within it. Indeed for Germany, despite becoming increasingly irritated by having to dip their hands into their rapidly fraying pockets, the crisis in the eurozone has been accompanied by the lowest unemployment rates since before re-unification in 1990 (see chart below – we won’t rehearse the very valid argument that Germany enjoys an
extreme currency undervaluation within the eurozone umbrella). For the German worker with 5.3% unemployment it is a case of “crisis, what crisis?” But the argument about whether a country will leave the eurozone will not ultimately be an economic decision. Leaving the eurozone will be a decision based on the politics of depression.”


Got a comment or question about this post? Feel free to use the Ask Cullen section, leave a comment in the forum or send me a message on Twitter.

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

More Posts - Website

Follow Me:

  • Stephen

    You can be the first one to leave ……..a comment.

    That actually appears to be the most apt comment in itself !!

  • George Dorgan

    The great moderation when emerging markets helped to push down inflation of western economies, was a period of cheap financing for creating real estate bubbles. Due to the German reunification there was no bubble in Germany, but an increase of labour. This pushed down labour costs and after time increased productivity.

  • Old Dog

    Three options:

    1 Certain nations leave the Euro

    2 Political Union

    3 Another European War

    They need leadership – big time!

  • Hans

    ” who have no floating exchange rate” So the Euro does not trade after all..

    Please stop this demented topic as to why some Euro States suffer at their own expense because Germany has a good work ethic…

    Blame the Prussians; Bismark; The Kaiser; The Wiemar Republic; as the Wehrmacht entered each European state demanding union or WAR…

    Long time ago, Uncle Milton, stated that the EURO will not last and for more reason than just not having a “home currency.”

    Past history shows, that monetary union does not work nor will the EURO…In the meanwhile, simply blame Berlin for all of the Continent problems..

    The problems of Europe are not a currency issue but a failing social, moral and political environment…

  • Stephen

    One imagines that with each new crisis performing a debt write down iteration that ultimately reduces cross border exposure Europe may actually get to a point where cost of fragmentation weighed agains the costs of ongoing tranfers is at breakeven. Is that not what they started when they encouraged banks to start buying up theirown soverign debt?

  • Martin

    I agree Georges although there was one bubble that has inflicted a lot of pain to German banks, it is structured finance namely shipping. Just look at the sorry state of Commerzbank and HSH Nordbank’s balance sheet. Cheap credit in the US inflated real estate but in Germany many investors and even retail investors were lured by investing in shipping. Some German banks must be quite happy to attract deposits of peripheral banks to offset the rising losses from their shipping loan books.



  • Very Serious Sam

    “As you can see, there’s an unbelievable divergence in the unemployment rate in Germany when compared to the rest of Europe”

    It is not unbelievable at all. Just have, for instance, a look at the development of the unit labor costs since 1998. Draw a diagramm starting at 100%, add the graphs of, say, France, Greece, Spain, Ireland, Portugal and Italy. See something?