German Incomes Leaving Rest of Eurozone Behind

 
   By Paul Hannon 
 

        Five years into the eurozone's debt crisis, Germans have seen their incomes move clearly above those of the rest of the currency area, while Greeks have suffered the largest decline.
        Each year, the European Union's statistics agency publishes figures for actual individual consumption (AIC), a measure of income that includes not just what people earn through their work, but what they receive in the form of goods and services provided by the state, such as health and education.
        As such, moves in AIC reflect not just the changes in wages as economies slow and accelerate, but also the impact of austerity programs on living standards, since cutbacks in government spending show up as a decline in AIC.
        So how have citizens in the various eurozone members fared in the years since the eruption of the eurozone crisis in 2010? Germans have done pretty well, enjoying a 12.4% rise in incomes. By contrast, Greeks saw their incomes drop by 10.7%.
        That's a pretty big swing over a five-year period. People living in Ireland and Spain have also seen their incomes fall, although less sharply than their Greek counterparts. There were signs in 2014 that those declines had come to an end, but it seems unlikely that bottoming out will mark the start of a rapid narrowing of the gap with Germany.
        There are two views in the eurozone on how the pain of the post-crisis adjustment should have been distributed. One view is that crisis was of the eurozone as a whole, and the costs of fixing its problems should be shared among its members. Another view is that the crisis had little to do with the eurozone as a whole, and is the result of bad national policy making.
        The changes in incomes since the crisis began suggest that in practice, the latter view has had a greater influence on policy responses to the crisis.
        The changes in incomes are a testament to a rebalancing of the eurozone's economy that most economists believe was necessary. Many of the nations that embarked on austerity had consumed much more than they produced in the years running up to the fiscal and banking crisis, accruing large current-account deficits and borrowing heavily from abroad.
        Taking a broader look at Europe's large economies, it seems the U.K.'s decision to remain outside the eurozone hasn't yet proved a big advantage in aiding its recovery from the 2008 financial crisis. While Britons enjoyed incomes higher than their counterparts in other large European economies prior to the crisis, austerity has led to a convergence, with Italy a clear laggard. Incomes do appear to be rising again in the U.K., but they are also on the increase in France and the Netherlands.
        Write to Paul Hannon at paul.hannon@wsj.com
        (END) Dow Jones Newswires

        June 19, 2015 06:02 ET (10:02 GMT)

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