Convergence crisis: economic crisis and convergence in the European Union

The success of the integration process of the new EU Member States is reflected by the convergence performance. Sustainable convergence assumes that potential growth rates of the less developed countries continuously exceed the dynamics of the potential output of the developed countries. However, the financial and economic crisis of 2008 has resulted in a fundamentally new situation as regards these issues. This paper considers real convergence, catch-up processes and in terms of these the main economic growth trends. The study focuses mainly on the potential growth trends. The recession has, however, affected the individual countries to different degrees. The study classified the Member States into four groups based on the initial circumstances and the vulnerability originating from them; these are ‘Developed’ countries and ‘Convergence’ countries, three groups of the latter are ‘Mediterranean’ countries, ‘Catch-up’ countries and ‘Vulnerable’ countries. Potential growth and the contribution of the individual growth factors might follow significantly different paths in these country groups. The convergence countries might face especially great challenges. Potential growth rate of the ‘Convergence’ countries—according to simulations—is expected to recover less in the mid-term, than that of the ‘Developed’ countries, i.e. convergence slows down, it might come to a halt or even divergence might occur in certain countries. It might result in a ‘Convergence Crisis’ particularly in certain ‘Mediterranean’ and ‘Vulnerable’ new Member States. Also, longer term simulations indicate that the European convergence processes might slow down and stop in certain countries. These trends may have significant effects on economic policies facilitating potential growth. We apply extensive quantitative analysis, production function and growth accounting approaches in the study. Copyright Springer-Verlag 2012