Forex Flash: Is Eurozone destined to repeat mistakes? – Goldman Sachs (Barcelona) - According to the Economics Research Team at Goldman Sachs, “While the Euro area as a whole is likely to avoid a repeat of the poor economic performance from the mid-1970s to the mid-1980s, the Euro area periphery is at much greater risk of witnessing a repeat of the high and rising unemployment rates of that era.” The potential parallels emerge clearly when one applies a framework built around an analysis of the ‘labor share’ of income.

The recent sharp rise in unemployment rates in the periphery is partly a consequence of a rise in labor shares during the first decade of monetary union. This resembles the adjustments made in the UK and elsewhere during the 1980s (which, in turn, were partly a correction of the rise in labor shares in the 1970s). However, there are also differences with that earlier era: while the rise in labor shares in the 1970s resulted from a ‘bargaining push’ by labor, the rise in periphery labor shares in the 2000s was a consequence of the investment boom (that had been stimulated by low interest rates).