European Economic Convergence: Twenty Years Later (Policy Brief 286 - September 2012)
The real convergence between member countries of the euro area has not carried out according to the previsions that preceded the adoption of the Maastricht Treaty.
- European Economic Convergence: Twenty Years Later
Even though the subprime crisis was a trigger, the current crisis is most likely due to factors related to the implementation of the monetary union in itself. In particular, the differences in real interest rates and in credit to the private sector seem to explain much of the overall movement towards more heterogeneity. However, labor costs that are often regarded as a cause for the crisis are only one source of divergence. In addition, productive activities are polarizing in the EMU because of increasing returns to scale and externalities associated with the creation of a large single market. Paradoxically, the Structural Funds that are supposed to support the development of infrastructure may have increased these differences by facilitating trade between countries at the heart of the euro area and countries in the peripheral areas. Nevertheless, the influx of capital to the countries catching up with other euro area member countries remains effective as long as the convergence objective is maintained. In this case, the Structural Funds or other similar structures may be a trigger for productive investments.
Summary
- In the early 1990s, the european commission emphasized the important benefits of a monetary union, but did not deny the potential costs
- Nominal convergence criteria prior to the monetary union was a factor for real divergence
- Polarized economic activities and increased territorial disparities betwenn countries in the euro area, despite the EU structural funds
- Authors: Mouhamadou Sy, Economy FinanceDepartment .
Keywords: nominal convergence; real divergence; optimal currency area; polarization of activities.