September 13, 2017

The experience of recent decades has challenged the prediction that the single currency would help differences in income levels across euro area countries narrow over time. This income convergence among the founding countries of the euro has not happened, prompting a need for further economic reforms. While newer members of the euro have converged, even this trend has stalled since the crisis.

When the 12 founding members of the euro embarked on the project of economic and monetary union, they had a clear expectation that sharing a single currency and liberalizing capital flows would boost economic growth, and help countries with lower initial income levels catch up to their richer neighbors.

Although monetary policymaking can operate effectively when income levels differ, convergence helps to ensure that the gains from economic integration are shared, and thus bolster the cohesion of the monetary union.

Great expectations of convergence Den Rest des Beitrags lesen »