IDEAS home Printed from https://ideas.repec.org/a/euf/qreuro/0142-03.html
   My bibliography  Save this article

Business cycle synchronisation in the euro area

Author

Listed:
  • Narcissa Balta

Abstract

The initial global financial shock in 2008 and the subsequent collapse of global trade did not seem to affect the euro area countries asymmetrically, as all countries slipped into recession at the same time. However, the subsequent euro area sovereign crisis has propagated heterogeneously across euro area countries causing significant cross-country differences in domestic demand and resulting in large business cycle divergence between 2011 and 2013. Differences in Member Statesí debt overhang can have a negative impact on business cycle synchronisation across euro area Member States during deleveraging periods, as they make euro area-wide shocks propagate heterogeneously. As a result, they can be a major source of asymmetries. While the impact is not likely to be permanent, a long-lasting deleveraging period in some Member States can lead to a protracted period of business cycle decoupling from the rest of the euro area, making the common monetary policy less effective for certain countries. Even though differences in growth in real GDP per capita between Member States and the euro area average recently returned to pre-crisis levels, risks of asymmetric shocks in the euro area will remain significant until the ongoing balance sheet adjustment period in both private and public sectors is completed. However, policies can contribute substantially to contain risks of divergence. Recent and planned institutional and structural changes, including the Banking Union, the Capital Markets Union and in structural reforms in Member States, have a key role to play in this respect.

Suggested Citation

  • Narcissa Balta, 2015. "Business cycle synchronisation in the euro area," Quarterly Report on the Euro Area (QREA), Directorate General Economic and Financial Affairs (DG ECFIN), European Commission, vol. 14(2), pages 28-36, July.
  • Handle: RePEc:euf:qreuro:0142-03
    as

    Download full text from publisher

    File URL: https://ec.europa.eu/info/sites/info/files/ip001_en_3.pdf
    Download Restriction: no

    More about this item

    Keywords

    business cycle synchronisation;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:euf:qreuro:0142-03. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ECFIN INFO). General contact details of provider: http://edirc.repec.org/data/dg2ecbe.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.