Euro Area Crisis 'Not Just About Greece'

The biggest misconception you could have about the crisis in the euro area is that it is all about Greece.

Granted, the immediate worry about default, about banks losing money and about chaos in the currency area does surround Athens.

The emergency conference call between Angela Merkel, Nicolas Sarkozy and George Papandreou concerns the latest in the country's bailout saga.

To be more specific, the first bailout from the so-called troika of creditors - the IMF, European Union and European Central Bank - is failing on a couple of fronts.

First, Greece is failing to cut its deficit as fast as it had agreed under the first bailout package.

Second, private banks are proving more reluctant than expected to take up the voluntary debt restructuring offered as part of the second bailout package.

Third, some countries (most notably Finland) have refused to participate in the second bailout package without accepting collateral.

If problems two and three prove intractable, then the second bailout package could fall through entirely (and bear in mind it hasn't yet been agreed by German Parliament).

Then the latest instalment from the first bailout, due at the end of this month, could be withdrawn.

But having spelt all of that out, the biggest misconception you could have is that Greece is in some way unique.

The same characteristics that have put the country in the firing line - high borrowing, big current account deficit, low productivity - are shared by the majority of Mediterranean countries.

While Greece certainly has an extreme version of this disease, it is not alone.

The graph below tells the story. These lines are the best economic measure of the "bang for your buck" you get in selected eurozone countries (technical name - unit labour costs).

In theory, you would expect countries within a single currency to move gradually towards having the same cost of labour - after all they issue the same buck so should have at least comparable bang.

A single currency with radically divergent labour costs will almost certainly tear itself apart (or the more efficient members will have to fund the less efficient ones).

The hope was that the euro would cause this convergence.

As you can see, however, what's happened over the past six years is that Germany has become rapidly more efficient (the cause: wage cuts and voluntary austerity) while most of the other nations have become flabbier and less efficient.

What is striking from this picture, however, is that if there is an outlier it is not Greece, but Germany.

In other words, if you had to solve the euro crisis by ejecting one country it would be Germany rather than Greece.

Although this reality has been obvious from the figures for some time, it is only gradually taking root as a real idea in Berlin more recently - perhaps because European cohesion is such a key plank of modern German national identity.

But it underlines the issue at the heart of Europe.

Countries cannot survive in the same currency unless they either have similar levels of productivity or commit to long-term subsidisation of inefficient members.

The gaping void between Germany and the rest means that if the euro chooses the latter option it is Germany which will be left with the biggest bill.

No wonder the German parliament is hesitating before endorsing the second euro bailout.