Working paper No. 7: European economic convergence: Twenty years later
Real convergence in the member countries of the euro area has not carried out as expected. 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 div ergences 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 do not seem to be an important 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 could have increased these di erences 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 to other euro area member countries remains eff ective 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.
- JEL Classifi cation: E58, F12, F15, F32, R12
- Keywords : Nominal convergence, real divergence, optimum currency area, polarization of activities
- Author : Mouhamadou Sy