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Ten Years of EMU: convergence, divergence and new policy priorities

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  • Nikos Christodoulakis

Abstract

As the tenth anniversary of EMU is approaching, a debate is underway as to whether the single currency has promoted or hindered convergence among the countries of the Eurozone. On the one hand, there is wide agreement on the fact that asymmetric shocks have subsided after the creation of the single currency and that FDI has been substantially promoted both in and outside of EMU as a result of reduced exchange rate volatility, more integration and better institutional functioning. But if one moves to examine the catching-up process between the less and more-affluent countries of the Eurozone, the evidence in support for convergence is fading away after the EMU was initiated in 1999. A process of divergence in per capita GDP is underway, in contrast with the substantial progress that has taken place during the nineties. Regional convergence is also found to wane, though the evidence is not as conclusive. Moreover, post-EMU divergence in per capita GDP appears to be far more pronounced than that of per capita GNI, due to the risk-sharing strategies implemented after the EMU to face asymmetric shocks and the resulted relocation of capital. Another worrying development in the Eurozone is the emergence of unprecedented CA deficits in the Southern Eurozone countries, while the Northern Eurozone group enjoys substantial surpluses. Although both groups of countries have attracted increased FDI flows after EMU, there seems to be a sharp differentiation regarding size and composition. In the Southern countries, the housing sector has attracted relatively more investment than the production sector, while the reverse seems to be the case in the Northern group. Thus, investment in the Northern (Southern) Eurozone countries increased the traded (non-traded) output and caused an improvement (deterioration) in the trade balance. To face such imbalances, new policy priorities are required in the Eurozone that put more emphasis on convergence and competitiveness.

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Bibliographic Info

Paper provided by Hellenic Observatory, LSE in its series GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe with number 22.

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Date of creation: Jan 2009
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Handle: RePEc:hel:greese:22

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Keywords: Eurozone; economic integration; convergence; business cycles.;

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As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Je vládny dlh skuto?ne jediným problémom eurozóny?
    by Milan Va?ko in Kritická ekonómia on 2010-12-22 15:32:27
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Cited by:
  1. Horen Voskeritsian & Andreas Kornelakis, 2011. "Institutional Change in Greek Industrial Relations in an Era of Fiscal Crisis," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 52, Hellenic Observatory, LSE.
  2. Carlos Vieira & Isabel Vieira, 2011. "Assessing The Endogeneity Of Oca Conditions In Emu," GEE Papers 0042, Gabinete de Estratégia e Estudos, Ministério da Economia e da Inovação, revised Nov 2011.
  3. Eugenia Markova, 2010. "Effects of Migration on Sending Countries: lessons from Bulgaria," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 35, Hellenic Observatory, LSE.
  4. Christos Dimas, 2010. "Privatization in the name of ‘Europe’: analyzing the telecoms privatization in Greece from a ‘discursive institutionalist’ perspective," LSE Research Online Documents on Economics 31089, London School of Economics and Political Science, LSE Library.
  5. Stelios Karagiannis & Yannis Panagopoulos & Prodromos Vlamis, 2010. "Symmetric or asymmetric interest rate adjustments? Evidence from Greece, Bulgaria and Slovenia," LSE Research Online Documents on Economics 29168, London School of Economics and Political Science, LSE Library.
  6. Theodore Pelagidis, 2010. "The Greek paradox of falling competitiveness and weak institutions in a high GDP growth rate context (1995-2008)," LSE Research Online Documents on Economics 29098, London School of Economics and Political Science, LSE Library.
  7. George Pagoulatos & Nikolaos Zahariadis, 2011. "Politics, labor, regulation, and performance: lessons from the privatization of OTE," LSE Research Online Documents on Economics 33827, London School of Economics and Political Science, LSE Library.
  8. Spyros Kosmidis, 2013. "Government Constraints and Economic Voting in Greece," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 70, Hellenic Observatory, LSE.
  9. Christos Dimas, 2010. "Privatization in the Name of ‘Europe’: analyzing the telecoms privatization in Greece from a ‘discursive institutionalist’ perspective," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 41, Hellenic Observatory, LSE.
  10. George Pagoulatos & Nikolaos Zahariadis, 2011. "Politics, Labor, Regulation, and Performance: lessons from the privatization of OTE," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 46, Hellenic Observatory, LSE.
  11. Vassilis Monastiriotis & Jacob A. Jordaan, 2011. "Regional Distribution and Spatial Impact of FDI in Greece: evidence from firm-level data," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 44, Hellenic Observatory, LSE.
  12. Trenkler, Carsten & Weber, Enzo, 2012. "Identifying the Shocks behind Business Cycle Asynchrony in Euroland," Working Papers 12-11, University of Mannheim, Department of Economics.
  13. Spyros Kosmidis, 2013. "Government constraints and economic voting in Greece," LSE Research Online Documents on Economics 50259, London School of Economics and Political Science, LSE Library.
  14. Christos Lyrintzis, 2011. "Greek Politics in the Era of Economic Crisis: Reassessing Causes and Effects," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 45, Hellenic Observatory, LSE.
  15. Yiannos Katsourides, 2013. "Political Parties and Trade Unions in Cyprus," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 74, Hellenic Observatory, LSE.
  16. Christos Lyrintzis, 2011. "Greek politics in the era of economic crisis: reassessing causes and effects," LSE Research Online Documents on Economics 33826, London School of Economics and Political Science, LSE Library.

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