Macroeconomic implications of EMU at the regional level

With no doubt, the main cost of joining a currency area is the loss of monetary policy instruments at a national level (e.g. the exchange rate) as stabilisation mechanisms against macroeconomic disturbances that only affect one country of the area or affect them in different manners. As this kind of macroeconomic disturbances, known as “asymmetric shocks”, cannot be dealt by a common monetary policy, alternative adjustment mechanisms are needed to achieve macroeconomic stabilisation. However, the evidence for Europe has shown that European countries have a lower response capacity than other currency areas. For this reason, several studies have examined to what extent asymmetric shocks have been relevant in Europe in the past, mainly at a national level. However, the regional dimension is relevant for this analysis. Not all the regions are equally affected by the problem of asymmetric shocks. The consideration of the fact that European regions did not have sovereignty to apply their own autonomous policy implies that, inside every national state, there could have been regions adversely affected by the national single monetary policy in presence of asymmetric shocks. In this sense, the consideration of the effects of taking part in the Economic and Monetary Union necessarily involves to consider the relative situation of every region inside their own country. If the relationships between every region and the European aggregates are as intense as the relationships with the previous national aggregate, the relative position of the region in this new macroeconomic framework will be similar to the previous one. In this paper, we analyse macroeconomic effects of EMU at a regional level using the Eurostat Regio database. The results show that there are big differences among regions: there will be winners and losers.