France and Italy cannot continue to reject wage discipline

The specific feature of France and Italy is that real wage growth outpaces productivity growth, even when corporate profitability is weakened and cost competitiveness is poor. In a currency area, such a lack of wage discipline and absence of restoring force on production costs is not sustainable in the long term. It leads to market share losses, deindustrialisation and concentration of jobs in unsophisticated domestic services where wages are low, with a negative effect on purchasing power that fiscal deficits cannot permanent ly correct; weak earnings lead to either a continuous rise in corporate debt to maintain investment (case of France), or to insufficient investment (case of Italy). So a mechanism that corrects wages will one day have to appear in France and Italy.