Winners and losers from the €uro

Using the synthetic control method, this paper estimates the effect of having joined the monetary union on the income per capita of six early adopters of the euro. Our estimates suggest that while the income per capita of Belgium, France, Germany and Italy would have been higher without the euro, that of Ireland would have been considerably lower. In contrast, the Netherlands would have been as well off without the euro. We show that these estimates are not contingent on our choice of baseline control groups, growth predictors and pre-treatment period. In addition, we use the insights from the literature on the economic determinants of the costs and benefits of monetary unions to explain our estimates. We find that early euro adopters with a business cycle more synchronized to that of the union and more open to intra-union trade or migration, lost less or gained more from the euro. A key role in increasing post-euro income losses of union members has been played by the integration of capital markets.