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This paper reviews cases of successful price and wage adjustment in Australia, Latvia and the newly-formed German states and contrasts them with the Greek experience under the Troika programme. Latvia stands out as having had the quickest adjustment in wages. By contrast, before the crisis, Greek wages appeared to have been largely insensitive to labour market conditions, but this changed with the programme. The authors find that the reaction of wages to unemployment in Greece under the programme was increasingly similar to that observed in Germany and Portugal (a case that has attracted less attention). A priori it is likely that the change in wage behaviour in Greece was due to the labour market reforms imposed under the programme. But this cannot be proven beyond doubt.

Keywords: Phillips curves, price and wage adjustment, internal devaluation, Australia, Greece, Latvia, Portugal, West vs. East Germany

Ansgar Belke is ad personam Jean Monnet Chair for Macroeconomics, University of Duisburg, Essen. Daniel Gros is Director of CEPS. This paper is externally published in the European Journal of Comparative Economics, Vol. 14, No. 2.