Economic Convergence in the Euro Area: Coming Together or Drifting Apart?

48 Pages Posted: 8 Feb 2018 Last revised: 18 Nov 2021

See all articles by Jeffrey R. Franks

Jeffrey R. Franks

International Monetary Fund

Bergljot Barkbu

International Monetary Fund (IMF)

Rodolphe Blavy

International Monetary Fund (IMF) - African Department

William Oman

International Monetary Fund (IMF)

Hanni Schoelermann

International Monetary Fund (IMF)

Date Written: January 2018

Abstract

We examine economic convergence among euro area countries on multiple dimensions. While there was nominal convergence of inflation and interest rates, real convergence of per capita income levels has not occurred among the original euro area members since the advent of the common currency. Income convergence stagnated in the early years of the common currency and has reversed in the wake of the global economic crisis. New euro area members, in contrast, have seen real income convergence. Business cycles became more synchronized, but the amplitude of those cycles diverged. Financial cycles showed a similar pattern: sychronizing more over time, but with divergent amplitudes. Income convergence requires reforms boosting productivity growth in lagging countries, while cyclical and financial convergence can be enhanced by measures to improve national and euro area fiscal policies, together with steps to deepen the single market.

Keywords: Business cycles, Economic integration, Euro Area, Financial cycles, Convergence, synchronization, Economic and Monetary Union, Optimum Currency Area, Financial Aspects of Economic Integration

JEL Classification: E32, F15, F36, O47

Suggested Citation

Franks, Jeffrey R. and Barkbu, Bergljot and Blavy, Rodolphe and Oman, William and Schoelermann, Hanni, Economic Convergence in the Euro Area: Coming Together or Drifting Apart? (January 2018). IMF Working Paper No. 18/10, Available at SSRN: https://ssrn.com/abstract=3120337

Jeffrey R. Franks (Contact Author)

International Monetary Fund ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Bergljot Barkbu

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Rodolphe Blavy

International Monetary Fund (IMF) - African Department ( email )

1700 19th Street, NW
Washington, DC 20431
United States

William Oman

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Hanni Schoelermann

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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