The question of achieving an ‘internal devaluation’ has been raised in a late contribution to the previous thread. It deserves more attention than it tends to receive on this site.
The phrase refers to improving competitiveness in the absence of a national exchange rate by reducing costs and prices relative to those of competitor countries.
Labour costs are a major component of domestic costs and one over which we retain ‘sovereignty’.
In 2011 Irish hourly labour costs were €27.4, which was 99.3 per cent of the Eurozone (EZ) average of €27.6. In 2008 (the peak year) Irish labour costs were 105.7 of the EZ average, so there has been some improvement in this measure of our competitiveness.
However, Irish costs remain much higher than those in several EZ countries. Here are some relevant comparisons: Spain €20.6, Slovenia €14.4, Portugal €12.1 and Estonia €8.1. Outside the EZ the UK figure is €20.1, while the US Bureau of Labor Statistics gives a figure of $34.2 for hourly labour costs in US manufacturing in 2010 compared with $36.3 for Ireland.
Obviously all EZ countries cannot gain competitiveness relative to each other by reducing labour costs, although the EZ as a whole could become more cost-competitive relative to the rest of world by this strategy. However, I think it is clear that we would have to wait a long time to see any dramatic results from this source either in Ireland or in the EZ as a whole.