Germany Greece, Ireland, Italy, Portugal, and Spain (GIIPS) have become increasingly uncompetitive since adopting the

e euro. But competitiveness is relative, raising an important question: how did Germany, Europes largest and most competitive economy, fare under the euro? The answer begins with Germanys unification ten years prior, which was followed by massive investments designed to modernize the Easts economy and integrate it with Germanys industrial heartland. Introduction of the euro consolidated Germanys unit labor cost advantage vis-vis its Euro area partners. Exports surged and domestic demand growth fell behind that of the GIIPS, widening bilateral trade surpluses. Germany, now poised to derive the greatest gains from the euros crisis-triggered decline, should boost its domestic demand to compensate for the deflationary measures taken by the GIIPS unit labor costs grew by 17.6 percent from 1990 to 1995 domestic demand expanded by nearly 7 percent of GDP from 1990 to 1992. Germany saw its export performance improve and rise in significance. From 1993 to 2000, the share of exports in its GDP rose by more than 10 percentage points, from 22 percent to 33 percent Since adopting the euro, Germany has seen its exports regain world share, rising 0.5 percentage points from 2000 to 2009a remarkable performance exports have gained an additional 14 percent of GDP share in Germany, bringing the total gain from 1993 to 2008 to a remarkable 25 percentage points. In a nutshell, while the GIIPS became more inward-focused and driven by domestic activities, Germany became the worlds largest exporter.

PORTUGAL Portugal saw its boom that followed the adoption of the euro fade quickly. In the run up to the launch of the euro, its GDP had grown at an average annual rate of almost 4 percent boom, which was triggered by a sharp decline in interest rates and fueled by expansionary fiscal policy, was not followed by a parallel increase in potential supply euros adoption led interest rates to fall sharply in Portugalfrom an average of 12.3 percent in 19911995 to about 6 percent in 19962000setting the stage for a consumption boom Between 1995 and 2000, private savings dropped by about 7 percentage Though tax revenues surged, fiscal policy was pro-cyclical, adding to the expansionary conditions. The primary balance deteriorated by about 3.5 percentage points of GDP between 1995 and 2001. Great Recession did not hit Portugal as hard as the other vulnerable economies, it did lead GDP to contract by 2.7 percent in 2009.

SPAIN The challenges confronting Spain stem from the same source as those in Greece: a huge misallocation of resources and loss of competitiveness that began with the adoption of the euro. Spains non-tradable sectorshousing, government, and a broad array of market serviceshad grown far too big. Spain has a debt-to-GDP ratio that is half that of Greece and thus has more time and resources to fix its problems. However, its large deficits and the collapse of its post-euro growth model imply that its public debt couldif remedial measures are not takenfollow an exploding path The housing sectors boom and bust has undeniably defined Spains crisis. At its peak, construction value-added reached 17 percent of GDP Amid this demand boom, the price of all non-tradable activities rose relative to that of tradables (whose price is set in world markets); investment and labor were pulled into these non-tradable sheltered sectors; and wages were bid up higher than in other Euro area members its total factor productivity (TFP) fell behind. Between 2000 and 2008, TFP was essentially stagnant in Spain, compared to average annual growth of 0.9 percent in Germany and 1.4 percent in the United States. exports as a share of GDP fell by 3 percentage points from 2000 to 2008 in Spain, compared to a rise of nearly 14 percentage points in Germany. While Germany grew its current account surplus, Spains plunged into deep deficit. The massive rise in unemploymentwhich crossed the 20 percent threshold in April should be interpreted