I agree, this is a nice graph. And although I generally sympathize with Rodrik’s ideas I think that this analysis is to much on the surface. In particular, he staes the following:
“The chart reveals an important reason behind Italy's poor performance: a large real exchange rate appreciation. Compare this for example to Germany, where significant real depreciation (an increase in external competitiveness) has stimulated export growth and has been an important driver of recent growth. [..] If the Eurozone was a country rather than a loose grouping of countries, workers would be migrating en masse from Italy to Germany. It's not clear that there are similar equilibrating mechanisms within the Eurozone.“
As many of the Italians in Rigot will be willing to ascertain, Italy’s poor performance roots in much deeper problems. Similarly, for Germany much of the real exchange rate depreciation is due to wage restraint over the last years.
I guess what I am tying to say is that the real exchange rate is endogenous and the outcome of underlying conditions, which are at the core of the problem. This is why part of the conclusion of Rodrik is wrong, Germany has had wage restraint over the last years and was (partly) therefore able to remain competitive. Hence, one would not expect people to move to Germany, but rather - what happened over the last years - see people leaving Germany to Switzerland (like me), Austria (like my cousin) and the Scandinavian countries (well none of my family members moved there yet…I should ask my brother what he thinks about moving there given that he is a (militant) non-smoker and the findings in the below post).