If everybody decreases their labour cost everything else being equal, then obviously you don't get a competitive advantage from it. You just made everyone poorer. See also http://seekerblog.com/2012/01/17/euro-crisis-german-unit-lab... for the same line of arguments. Germany essentially gained market shares at the expense of other eurozone countries (0-sum game) instead of actual increases in productivity (which is not a 0-sum game).
As far as pressure for decreasing labour cost, this is pretty much uncontroversial. I did not say that Germany had a gvt authority setting salaries, but various factors such a pressure from high unemployment in the early 2000, and lower-than-eurozone inflation helped it (see e.g. http://www.voxeu.org/article/how-restore-competitiveness-eu - even though that article argues something closer to the opposite of what I am arguing here).
As far as pressure for decreasing labour cost, this is pretty much uncontroversial. I did not say that Germany had a gvt authority setting salaries, but various factors such a pressure from high unemployment in the early 2000, and lower-than-eurozone inflation helped it (see e.g. http://www.voxeu.org/article/how-restore-competitiveness-eu - even though that article argues something closer to the opposite of what I am arguing here).