Relative Price Levels in the Euro Area 1995-2009

This graph shows the relative price levels in selected euro area countries.  The PIIGS countries are in solid colors, and Germany is in heavy black - other countries are dashed.  I left off a few of the very small economies.

You can see the problem - over the last 15 years, costs on the periphery escalated relative to the big core economies - Germany and France.  Now the area is at risk of deflation - in particular in Ireland, there was clear deflation in 2009.  (There's an interesting article on the not-too-great effects of Ireland's austerity program in this morning's NYT).

Here's the same data with the German price level divided out.

It's going to take a while to undo that...

The data are from the IMF World Economic Outlook database.